So, you’ve heard about the exciting cryptocurrency, ZCash, but you’re not sure how it works or how it can be used? Well, you’ve come to the right place to learn more (luckily enough for you)!
By the way, did you know that ZCash was once called Zerocoin?
Anyway, this “What is ZCash?” guide is going to tell you everything you need to know. First, I will give you some background information about ZCash. Then I will tell you how it can be applied to the real world.
After that, I will explain ZCash’s technology in a really simple way. I will also talk about its potential to either rise or fall in value over the long-term.
So, I hope you’re ready to be educated. Let’s get started!
Table of Contents
The Roots of Zcash
ZCash was created in October 2016 by a developer called Zooko Wilcox. Wilcox really liked what Bitcoin could do, but he didn’t like the fact that transactions were available for everybody to see. Instead, he wanted to create a blockchain that would allow people to send and receive funds anonymously — which is exactly what ZCash can do!
To make his dream a reality, Wilcox performed a fork of the original Bitcoin code. Wilcox made some really impressive changes to the Bitcoin code to make sure that not only was it more private than Bitcoin, but also faster!
Note: When a blockchain is forked, it means that the original code is copied, but then changes are made to make it better. Famous blockchain forks include Bitcoin Cash (forked from Bitcoin) and Ethereum Classic (forked from Ethereum).
One of ZCash’s biggest fans is the famous whistleblower, Edward Snowden, who recently said it is the most interesting alternative to Bitcoin! The project also received private investment from the cryptocurrency legend Roger Ver and ex-banker Barry Silbert.
The ZCash blockchain has its own cryptocurrency, which is also called ZCash, or “ZEC”. In total, there will be a maximum of 21 million ZEC coins, which is the same amount as Bitcoin. It is predicted to reach this amount in the year 2032.
However, the ZCash blockchain can process transactions much quicker than Bitcoin and it is also more scalable. Scalability is important as it means that a blockchain can process lots of transactions at once. I’ll talk about this in more detail later on…
The main feature that ZCash has is that it hides the identity of both the sender and receiver. In fact, it is so private that the only information you can see is the transaction date and time!
Just like Bitcoin, no single person or authority controls ZCash — it is decentralized! Instead, the blockchain is maintained by miners, who earn ZCash coins in return for their time and electric power.
So, now that you have a brief understanding of what it is and why it was created, the next part of my “What is ZCash” guide is going to explain some of its features in more detail!
What Is ZCash Review: How can ZCash Be Used?
The main purpose of ZCash is to allow people to send and receive funds quickly, cheaply and most importantly — privately. In fact, the ZCash team hopes that one day it will become a global payment system used by people all around the world.
Think about how you might send funds to somebody living in a different country. You would have to use to a third party such as a bank or Western Union. Whichever option you choose, the fees are normally quite expensive.
For example, sending $200 to Southern Africa costs an average of 14.6%, or $29.20! That’s a big fee to someone who might be living in poverty. An international transfer like this is called a “Remittance”, and it is a multi-billion-dollar industry that makes third-party intermediaries lots of money.
Not only this but sending funds to somebody in a different country can also take days before it arrives! It is these very reasons that make ZCash a great alternative.
So how does ZCash compare? Well, the system is able to confirm a new block every 2.5 minutes. A block is similar to a container carrying lots of different packages. However, instead of carrying packages, a block carries transactions! This is much quicker than Bitcoin, which normally takes 10 minutes to confirm a block.
When it comes to fees, the ZCash platform is much cheaper than sending funds with a bank. Although the fees change depending on how busy the blockchain is, it shouldn’t cost any more than a few cents!
Another advantage of ZCash over Bitcoin is the way miners operate. Although they both use a consensus model called “Proof-of-Work” (POW), the ZCash platform is much fairer.
Think about the mining as a really difficult puzzle. To validate a transaction on the blockchain, miners use their computing power to help solve the puzzle (or equation). Once it has been solved, the transaction is then confirmed in the block. To thank miners for solving the puzzle, they are rewarded with the coin native to the blockchain, which in this case is ZCash.
Mining Bitcoin has become really difficult as people are using expensive hardware called ASICs.
It’s like a being in a race with a Ferrari while you’re driving a Vauxhall! Who do you think would win? The Ferrari of course! Well, this is how unfair it can be when mining Bitcoin — people with more money can buy more powerful equipment, meaning they will always get the reward.
However, this is how ZCash is different. ASIC hardware does not work with ZCash, which means that people can use either a CPU or GPU to mine ZCash. These are much cheaper than ASICs, so anyone can mine ZCash!
There is a slight issue, though. For the first four years, ZCash developers will get 20% of all the transaction fees generated. They say that this will help fund the project, however, some people think this is unfair. If you used your electricity to mine ZCash, how would you feel about giving 20% of your reward to the developers? Probably not too happy, eh?
So, now that you know what it can be used for, the next part of my “What is ZCash” guide is going to explain how transactions work…
What Is ZCash Review: How Do Transactions Work?
As you probably know, blockchain technology is really complex. This sometimes makes it difficult to understand how everything works. But don’t worry, I’m going to explain it as simple as I possibly can.
The main technology that makes ZCash such a good blockchain is its “Zero-Knowledge Proof” protocol. This is what allows transactions to be sent anonymously. Here is an example of how both a Bitcoin and ZCash transaction looks:
Bitcoin Transaction: Wallet DEF456 sent 1.5 BTC to wallet GHI789 on March 1st, 2018 at 1 pm
As soon as the block is confirmed, the above transaction information is sent to the public blockchain, which can be viewed by anyone. Not only this but once you know the wallet address, you can then view every single transaction that it has sent or received in the past. You can also see the balance of the wallet.
You have to ask yourself how comfortable you feel with this. Although nobody knows the real-world identity behind a Bitcoin address, it still reveals a lot of information about you.
More and more stores are accepting Bitcoin as a payment method, especially in Japan where there are more than 200,000 different vendors! If you physically walked in and paid using Bitcoin, the store owner would then have access to all of your transaction history.
ZCash is completely different though, let’s have a look…
ZCash Transaction: Wallet XXXXXX sent X.X ZEC to wallet XXXXXX on March 1st 2018 at 1pm
As you can see, the only information that is sent to the public blockchain is the date and time of the transaction. This is what makes ZCash a truly private and untraceable blockchain!
Zero-knowledge Proof was actually first created in the 1980s by three academics at the Massachusetts Institute of Technology University.
As the name suggests, the concept of Zero-Knowledge Proof is that it allows a system to verify a transaction without exchanging passwords. What this also means is that the keys cannot be stolen or hacked and nobody can see any of the private information that is being shared on the blockchain.
Here’s a real-world example to show you exactly how the blockchain is able to confirm that a transaction is valid without revealing the passwords.
- John has two balls. One is green, the other is red.
- Sue is blind and does not believe that the balls are a different color.
- John tells Sue that he can prove the balls are two different colors.
- Sue takes the two balls, mixes them up behind her back and then shows John one of the balls, which is green.
- Sue then puts the green ball back behind her back and mixes them up again. However, she knows which ball she originally showed John.
- Sue then asks John to pick out the ball she originally showed him.
- John picks the green ball, which of course is correct.
- Sue says that it was a 50/50 chance John would pick the right ball. She is correct, but imagine if the same thing was repeated a million times? As John is not blind, he would always pick the right color.
- John was able to prove he was telling the truth.
- This is similar to how Zero-Knowledge Proof works. Even though Sue is blind, she can still trust that what John is telling her is correct.
So, now that you know how transactions work, the next part of my “What is ZCash?” review is going to talk about its potential!
What Is ZCash Review: Potential of ZCash?
The cryptocurrency market is really difficult to predict, but it’s always a good idea to look at some of the reasons why a coin might grow in value and the reasons why it might not.
Firstly, ZCash has done really well to form a partnership with major financial institutions JP Morgan, who are looking to install the Zero-Knowledge Proof protocol into their own blockchain project. Having a large organization such as JP Morgan show interest in ZCash gives the coin huge credibility.
However, a potential issue that might hurt ZCash in the long-term is that it could be used for criminal activity. This is because it allows people to send and receive funds anonymously, which is perfect for criminals.
The dark web is big business, with criminals selling illegal goods online in exchange for cryptocurrencies.
Governments all over the world are starting to discuss how they can regulate cryptocurrencies, and they might not like the idea of an anonymous payment system. However, ZCash has a possible solution, which they call the “View Key”.
Every ZCash holder has access to their very own view key, which allows users to reveal transaction data. This view key can also be shared with other users such as regulators or law enforcement, which would allow them to audit transaction history. However, the user would need to voluntarily agree to this, which a criminal probably wouldn’t.
A further issue that might prevent the value of ZCash growing is its potential to scale. I mentioned earlier in this “What is ZCash?” review that the blockchain can process more transactions per second than Bitcoin. But it is still only able to achieve between 6 – 26 transactions per second.
So, unless the ZCash developers are able to improve this, other blockchains might have a better chance of becoming a global payment system.
There are also other anonymous coins such as Dash that can process transactions much quicker. Using the InstantSend feature, Dash transactions take just a few seconds, where ZCash takes 2.5 minutes.
However, overall, ZCash has performed really well since it was created in 2016 and has established itself as a top 50 cryptocurrency. In fact, in late 2017, it reached an all-time high price with a market capitalization of over $2 billion! This has since gone down, but it is still worth well over $1 billion.
What is ZCash Review: Conclusion
I hope you have enjoyed this “What is ZCash” review! I know it’s been a long read, but if you followed it from start to finish, you should now have a much better idea of what is ZCash and how it can be applied to the real world.
I’ve covered everything from — why ZCash was built, to how it can be used. So, do you think it has the right specifications to become a global payment system? To be honest, I think it performs much better than Bitcoin, but the developers need to improve on its scalability.
Also, what do you think about mining ZCash? ZCash mining hardware is much cheaper than doing it with Bitcoin, so it could be a good idea to take a look further into that.
You should also have a good understanding of how Zero-Knowledge Proof works. I know it’s quite complex, but I am hoping my example of the two-colored balls helped.
I’ve also covered some of the things that might affect the value of ZCash long-term. But, what are your views? Do you think it will see its price continue to rise in 2018, or are there other coins you prefer?
Why don’t you let me know your thoughts in the comments below!