Topics Altcoins
Bybit Learn
Bybit Learn
Intermediate
May 17, 2022

What Is Zcash (ZEC): Privacy Through zk-SNARK Encryption

Privacy coins use cryptographic proofs to shield users' identities on the blockchain. Zcash is one of the leading digital currencies in this niche. In this article we’ll learn more about its history, its protocol, and how it’s evolving to compete with other technologies in its category. As global demand for privacy coins increases, regulators are taking note. Each currency’s approach to decentralization will influence its future viability. Effective marketing and technological adaptation may predispose Zcash to thrive. Investors can explore a basic Zcash derivatives trade and consider its prospects over the next few years.

What Is Zcash?

Zcash (ZEC) is a Bitcoin-based privacy coin that utilizes zero-knowledge encryption to shield, verify and validate transactions on its public blockchain.

In 2013, a team of seven research scientists conceptualized Zcash crypto as a privacy extension to Bitcoin. In 2015, they collaborated with computer security specialist Zooko Wilcox to create the Zerocoin Electric Coin Company (ZECC). The company then raised $3 million in venture capital to further develop the Zcash operational protocol and its zero-knowledge succinct non-interactive argument of knowledge (zk-SNARK) cryptographic proof. 

Following its release on October 28, 2016, the protocol underwent successive upgrades, known as the Zcash Sprout series. Two major core upgrades arrived in 2018: Overwinter coincided with the protocol's first hard fork on June 26, 2016. Sapling, released on October 29, 2016, included a network migration. Funds associated with Sprout addresses were transitioned to new Sapling accounts that used a more secure type of shielded address. Subsequent major upgrades iteratively increased performance, speed and functionality. Meanwhile, in May 2017, Zcash partnered with JPMorgan Chase to add a zero-knowledge security layer to Quorum, formerly the bank’s own Ethereum-based blockchain.

Next Steps

Before taking Zcash live, developers discovered vulnerabilities in the Zcash protocol, which uses public parameters to construct and verify proofs. These parameters also include "toxic waste," another name for information that can be dangerous in the wrong hands. If toxic waste is exposed, then the currency is susceptible to counterfeiting. To solve the problem, the developers broke up the toxic waste into smaller pieces and directed individual custodians to destroy each part. The protocol could not be compromised or reconstructed once one of these parts was destroyed. 

In order to implement the new multi-party computation protocol, Zcash enlisted six participants from around the world to participate in an event that became known as the Zcash Ceremony. All six participants destroyed their share of toxic information and the hardware that sheltered it. The actual execution of the key destruction was mundane, but the event served as a quasi-mythological catalyst for the Zcash origin story.

Back to Basics

Zcash crypto was created with decentralization as a core value, yet its creators required compensation for their efforts. As the company grew, 10% of Zcash returns were directed to the Founders' Reward fund, which distributed proceeds to founders, investors and contributors. The fund also endowed 273,000 ZEC to establish the Zcash Foundation in March 2017. This nonprofit organization maintains and governs the decentralization of all protocols and networks so that knowledge, resources and capabilities are distributed throughout the community and do not fall under the purview of any concentrated entity.

Anyone with a CPU or GPU can mine Zcash with open source software, which makes participation and partial ownership of the network public and accessible. In February 2019, ZECC rebranded to become the Electric Coin Company (ECC). Zcash discontinued the Founders' Reward on November 18, 2020, and replaced it with the Zcash Dev Fund, which continuously supports the protocol’s evolution.

Zcash crypto may be bought, sold and maintained on an exchange, or held safe in a private wallet. At least 16 cryptocurrency exchanges support Zcash. Some exchanges, including Binance, Bitfinex, Coinbase, Kraken and Polinex only support transparent transactions. Others — including Gemini, SideShift.aishift and Flyp.me — allow shielded commerce. Mobile, hardware, web or desktop-based wallets keep Zcash safe from the volatility of an exchange. 

As of May 2022, there are 17 wallets available to Zcash holders. Nighthawk Wallet, Unstoppable, Zecwallet Lite and Edge are mobile wallets that can store shielded Zcash. Cobo, Jaxx, Ledger, SafePay and Trezor are just a few of the wallet options that support transparent addressing only. Full-node wallets Zcashd and Zecwallet are made for miners and people who want to contribute to validating blocks and transactions.

How Does Zcash Work?

The Zcash privacy coin was created to make blockchain transactions private, secure and anonymous. If one analyzes the privacy capabilities of Zcash vs. Bitcoin, it becomes obvious that Bitcoin is never private. The founders of Zcash were the first to implement zk-SNARK proofs as a means of shielding detailed content, such as the exact amount of a particular transaction.

Zcash crypto has four transaction types that offer distinct distributive modes of shielding. Here’s how a Zcash crypto transaction works: Transparent (t) and shielded (z) interoperable addresses may be paired to expedite a valid transaction between sender and receiver. These four functional addressing combinations include transparent to transparent (t→t), transparent to shielded (t→z), shielded to transparent (z→t) and shielded to shielded (z→z) transactions that are called public, shielding, deshielding and private transactions, respectively.

Locating a transaction on the public blockchain confirms its incidence, but the visibility of its associated addresses, contents and memo details depends on the transaction type. A public Zcash transaction uses transparent addressing, and does not provide privacy. Currently, only transparent transactions support multi-signature capability. Shielded memos allow the sender to encrypt important messages or corroborating information. To comply with regulations, third parties can use owner-provided view keys to gain access to shielded details.

Zcash vs. Other Privacy Tokens

What is Zcash in the multiverse of cryptocurrencies? Zcash crypto is one of the best privacy coins available today. Available privacy solutions offer varying types and degrees of anonymity. Each of these privacy coins reflects the particular set of values and priorities its creators hold.

Zcash (ZEC) vs. Monero (XMR)

Monero is a Bytecoin-based altcoin that was released in 2014. Its privacy capabilities are constituents of its protocol; they are not optional features or added layers. Privacy is automatic, although one can opt out. Monero uses ring signatures to represent a composite identity. Ring confidential transactions (RingCTs) encode and hide specific transaction amounts, and stealth addresses utilize one-time-keys. Transactions are further enhanced with cryptographic bulletproofs that are conceptually similar to zk-SNARKS. These complementary technologies are part of a feature set that makes transactions untraceable and unlinkable, so that the connection or path between sender and receiver cannot be discovered by a third party. 

Monero has an adaptive block size. It’s slightly faster than Zcash crypto, and can facilitate more transactions per second (TPS). The fee structure is based on user-determined priority and size of transaction data; higher priority and large size correspond to a higher fee. Bulletproofs reduce transaction size, so fees drop as a consequence. Monero fees are still more expensive than the Zcash standard fee of 0.0001 ZEC plus the trading fee the host platform charges. As of May 2022, Monero leads Zcash in circulation and value per coin. Monero has an edge over Zcash, with an estimated 17,836,900 units in circulation out of a maximum supply of 18.4 million units. Zcash has 14,350,000 units in circulation out of a 21 million unit maximum supply. Monero ranks in the top 30 cryptocurrencies; Zcash ranks in the top 60.

Even the best privacy coins can never be completely anonymous. With that said, Monero has a reputation for protecting privacy — and is the preferred choice for use on the dark web. Many people may ask themselves, "What is Zcash, really, and is it truly the best way to keep transactions secret?" Fairly or not, Zcash crypto has been called a "corporate coin," perhaps because its founders have close relationships with established academic and banking institutions.

Zcash (ZEC) vs. Dusk Network (DUSK)

Dusk Network is an alternative to the best privacy coins, lowering costs by tokenizing securities and automating processes. By contrast, Zcash and Monero are payment technologies. Dusk Network is comparatively inexpensive relative to Zcash and Monero, but has the potential to be a good long-term investment.

Zcash (ZEC) vs. Beam (BEAM)

BEAM is a cryptocurrency that may also belong to the group of the best privacy coins. The Beam blockchain makes use of decentralized finance (DeFi) technology that utilizes the Mimblewimble protocol to hide the sender, receiver, and transaction amount by using confidential transactions. Instead of addressing, Beam associates each unspent transaction output (UTXO) with a private key that designates ownership.

All Beam transactions are private; there is no transparency. and a third party cannot read transactions on the blockchain. There is an option that allows users to create auditor keys for distribution. Third parties who receive auditor keys can review and verify transactions. Beam employs decoy UTXOs and utilizes the Dandelion Network to obfuscate network traffic and bolster anonymity. Like Dusk Network, Beam is comparatively cheap compared to Zcash and Monero, but is nevertheless considered to be a good investment. Neither Beam nor Dusk Network are expected to overtake Zcash or Monero in the next five years.

Is Zcash the Best Privacy Coin?

If an objective criterion for choosing the best privacy coins is based on the value of the currencies at a particular time horizon, like 2025, then Zcash is favored to win the top-ranked spot. Many investors believe the constant attention Zcash devotes toward improving and developing user-centric features will give it an edge over Monero in the near future. Government regulations may also influence the viability of each candidate.

Zcash Tokenomics

What is Zcash doing to pique the interest of investors who are interested in the coin’s trending value? Yahoo Finance shows Zcash crypto peaked at $505.51 on December 01, 2017, fell to an all-time low of $27.63 on December 1, 2019, and is valued at $123.62 as of May 1, 2022.

As more Zcash is released into circulation, its mining rewards will decrease with each halving. After the Founders' Reward ended in 2020, the Zcash community took care to allocate returns toward the ECC, the Zcash Foundation and the Zcash Dev Fund. A grant program will ensure that Zcash remains user-centric, decentralized and technologically competitive.

Is Zcash a Good Investment?

Consider Zcash vs. Bitcoin: Which cryptocurrency is the better investment? In the world of cryptocurrency, anything seems possible. Bitcoin dominates the current field of cryptocurrency players, yet there are asset managers who believe the value of Zcash could appreciate astronomically in the next five years. So what is Zcash planning for the future? What is it doing to become the leader of the pantheon of the best privacy coins — and how is it preparing for the anticipated arrival of web 3.0

The ECC envisions a user-centric ecosystem of features and services centered around Zcash. The Zcash 2022–2025 road map prioritizes development and release of an official cryptocurrency wallet. This technology is built on an expanded Zcash protocol that will introduce new governance-related features. The Zcash community has also chosen to transition from proof of work (PoW) to proof of stake (PoS) consensus to verify its transactions. The move to PoS is meant to create potential for on-chain governance mechanisms, lower energy expenditure, and staking. Contextualizing Zcash crypto within web3 introduces cross-chain interoperability via the

Cosmos stack, which makes development more accessible. The 2022 NU5 and Halo Arc updates will deliver the first release of the ECC reference wallet along with its associated open source SDKs and libraries, PoS, and interoperability to the public.

What is Zcash contributing to the conversation about cryptographic privacy solutions? What is it doing to shape its public profile in 2022? One answer could be that Zcash is creating sensational news to attract attention. In late April 2022, a leaked video revealed that Edward Snowden was one of the original six parties who took part in the first multi-party computation ceremony. In addition, the theatrics associated with celebrity and ceremony help keep Zcash in the public eye — and can influence its value. 

Furthermore, the Zcash road map details its plans to publicize its Cypherpunk Zero campaign, increase public relations engagement and share stories that will coincide with the release of the ECC wallet. Zcash will target its marketing efforts in North America and Latin America, and concentrate its energies on developing and engineering the PoS consensus. In 2023 and 2024, Zcash will focus on platform upgrades and rollouts.

Zcash Price Prediction

Wondering what is Zcash expected to do in the next few years to gain value and market share? Social media and online marketing have been known to push up cryptocurrency prices. As overall interest in a cryptocurrency increases, so does the number of potential buyers. The price of Zcash crypto increases as more people buy it. 

The Snowden reveal, the Cypherpunk Zero campaign and the three-year road map are paving the way for the value of ZEC to increase. Predictions of how much Zcash’s value will appreciate vary among forecasters. Cryptocurrency prices are expected to experience volatility for the foreseeable future, with predictions ranging from conservative to extremely optimistic. Forecasters have predicted future values ranging anywhere from approximately $45.00 to $438.00 at the end of Q4 2022. The median future value seems to be around $480.00 for 2025.

How to Invest in Zcash

When traders evaluate Zcash vs. Bitcoin, which cryptocurrency is more attractive? How do traders pick currencies for speculation? Is trading purely about maximizing profit? 

Regardless of their motivation, investors have a variety of exchanges to choose from when they wish to purchase or trade Zcash. Some investors outside the US are trading ZECUSDT derivatives on Bybit.

Readers should note that Bybit is not currently available to investors who live in the US, Québec (Canada), Singapore, Cuba, Crimea, Sevastopol, Iran, Syria, North Korea, Sudan or Mainland China. After the sign-up process on Bybit is complete, an investor can deposit funds into the account to be used for trading. Investors can trade ZECUSDT derivatives at up to 50x leverage on Bybit. Additionally, traders can also purchase short-term insurance to guard against losses.

Trading Zcash on Bybit

A trader who believes the value of Zcash crypto will change can place a limit, market or conditional order. Once the investor selects the trading category, they consider the available margin types before applying the desired amount of leverage to the order. Cross-margin with a hundredfold multiplier exposes all the funding to liquidation. Isolated margin allows an investor to manually input their chosen amount of leverage.

To go long on a limit order, the investor sets an order price at a level higher than the currency’s current value, and then funds the trade using the quantity (QTY) box. This quantity will be leveraged by the multiplier the investor designates. The position opens when the currency value meets the investor’s order price. To guard against losses, an investor can elect to take profit or stop loss (TP/SL) by clicking the appropriate box and entering a value that acts as a ceiling for the trade. If the currency’s value reaches the designated level, the investor will take the profit and exit the trade. A stop-loss limits the amount of a negative return to the order value, minus the trader-specified lower limit, so that the trader can exit the trade before being fully liquidated.

The Bottom Line

Zcash is a privacy coin on the rise. While it’s a promising privacy coin, the answer to its future depends on market demand. When investors consider Zcash vs. Bitcoin, they can choose between user-determined privacy and full transparency on the blockchain. Both currencies could thrive in the next few years. Zcash has strong fundamentals, with sensitivity to market demand and amenability to future regulation. Investors should take note of its potential as Zcash could be poised for great success.