What is Zcash (ZEC) and how does it work?
What is Zcash (ZEC) and how does it work
Zcash users can choose protected transactions or transparent transactions. Zcash is designed as a means of payment, a decentralized and open-source cryptocurrency with privacy and security that anyone can use.
Is Zcash a Bitcoin fork? Yes, Zcash is a fork of the Bitcoin codebase. However, it differs significantly from Bitcoin by incorporating enhanced privacy features using zk-SNARKs.
History of Zcash
The Zerocoin white paper was published in 2013 by Matthew Green and Eli Ben-Sasson and received contributions from other cryptographers and academics. The group believed that Bitcoin did not offer sufficient privacy for users and the proposed solutions.
Zerocoin initially uses the Bitcoin blockchain, hence its code base. Zooko Wilcox began working to advance the project in 2015, and Zcash was launched in October 2016.
Wilcox is the CEO of Electric Coin Company (ECC), whose developers are working to deliver the Zcash blockchain, supported by the non-profit Zcash Foundation. The work of the Electric Coin Company and the Zcash Foundation is partially funded by the newly minted ZEC issued by the Zcash protocol.
Key features of Zcash
Since Zcash uses a modified version of the Bitcoin code, it shares some features. Like Bitcoin, the total ZEC supply is limited to 21 million coins. New ZEC, Zcash mining or proof of work (PoW) consensus protocol.
Bitcoin is designed to be “pseudonymous” and not completely anonymous, as transaction and wallet address information is recorded on the Bitcoin blockchain and can be viewed by anyone. A greater anonymity solution with Zcash is an option for users to choose “shielded addresses” that are not visible on the Zcash blockchain. Alternatively, users can stick to explicitly recorded “transparent addresses”.
Another unique feature of the Zcash blockchain is the “Zcash ceremony” or “Zcash trust setup, which occurs when the blockchain is created and requires a trusted group to create a master public key for the blockchain.”
Once the installation was complete, the group needed to destroy the data related to the master key to protect Zcash from manipulation at later stages. Criticisms of this design stem from concerns that there is no evidence that the installation process was done as expected or that sensitive information was destroyed.
Zero-knowledge (ZK) proofs provide a unique transaction mechanism where the user can prove that a transaction is valid and complies with network rules without revealing any information about the sender, recipient, or amount traded. This groundbreaking technology ensures that transactions are fully verified on the blockchain yet shrouded in anonymity.
Zk-SNARKs stands for Zero Knowledge Knowledge Succinct Non-Interactive Knowledge Argument and is part of the Zcash ZK proofs developed by Electric Coin Company. This innovation allows protected Zcash transactions to be encrypted on the Zcash blockchain and verified by the consensus mechanism while maintaining the anonymity promised to users.
Transactions on Zcash have anonymous protected addresses (z addresses) or transparent addresses (t addresses). If two Zcash users use their z addresses to make a transaction, it is private and anonymous, so anyone monitoring blockchain activity cannot see where the transaction came from or where it is going. Zk-SNARKs ensure that the transaction can still be encrypted and verified on the blockchain.
Zcash has a PoW consensus mechanism like Bitcoin that powers the blockchain and verifies and secures transactions. However, unlike Bitcoin, Zcash uses an algorithm called Equihash, which controls the amount of computer random access memory (RAM) in mining Zcash that miners use to secure the blockchain.
Zcash consensus mechanism and network are known to be marginally faster than Bitcoin. Zcash transactions per second (TPS) range from six to 20, but the speed depends on the ratio of protected transactions to transparent transactions. Most Zcash transactions are transparent because most cryptocurrency exchanges do not support protected transactions.
Zcash upgrades and developments,
In 2019, Zcash launched a new zk-SNARK called Halo. This is a “trustless recursion” ZK proof designed to address scalability and the “reliable setup” issue. Halo 2 source code was released to the public in September 2020.
Previously, zk-SNARKs required a trusted setup, which occurred when Zcash was launched. The Halo 2 code allows the creation of a Zcash network without the trusted setup process, eliminating manipulation concerns associated with a trusted group of parties initializing the network and master key.
A sixth major Zcash upgrade in 2022 is Halo Ark, with even more innovative zk-SNARK technology. It ported Zcash to the Halo proof-of-concept system, eliminating the need for a trustworthy setup and improving the protocol's encryption.
The network also launched the open-source, shielded Zcash wallet in 2020 and upgraded the blockchain to add Shielded Coinbase and FlyClient support. Protected Coinbase allows miners to receive mining rewards to a z address. FlyClient enables lightweight client Zcash use cases and contributes to cross-chain interoperability.
Zcash implemented its first halving in 2020, reducing block rewards from 6.25 ZEC to 3,125 ZEC and establishing a development fund and the controversial “Founder's Award.” ” The next Zcash halving is expected to occur around November 2024 (exact timing depends on block production rates).
The future of Zcash,
Zcash has been criticized in the cryptocurrency space for its potential to facilitate illegal transactions, although this was not the goal of Zcash founders. It faces regulatory scrutiny for offering anonymous transactions and has been removed from some exchanges along with other privacy coins because its privacy and anonymity have been exploited by criminals.
Also, like others, it is a large and energy-intensive blockchain that needs to work on better scalability. Zcash has announced that it plans to move to a proof-of-stake (PoS) consensus mechanism in 2021. As of 2024, these plans still appear to be ongoing, with an approach that will see Zcash move to a hybrid consensus model before the final switch to pure PoS.
On the positive side, some believe that Zcash's privacy features add to its value and that as the crypto market grows, demand for privacy-focused coins and blockchains will increase. Ethereum developers and institutions like JPMorgan are touting the benefits of zero-knowledge technology for their own projects. However, it remains to be seen whether Zcash can overcome potential regulatory hurdles and become widely accepted as a truly rival to traditional forms of cash in everyday use.
