How Does Zcash (ZEC) Operate and What is It?

One well-known cryptocurrency for anonymity is Zcash. Zcash users have the option to transact anonymously. It was introduced as a payment method in 2016 and is similar to Bitcoin, but it also has several special and cutting-edge characteristics.

What is Zcash (ZEC)?

Although Zcash uses a new hashing algorithm and security measures, it is still based on the Bitcoin core. It was once known as Zerocoin before changing its name to Zcash. Users can obtain anonymity by using zk-SNARKs to create “shielded addresses.”

Users of Zcash have the option of transparent or shielded transactions. Zcash is a decentralized, open-source cryptocurrency that is intended to be used as a payment method. It is accessible to everyone and offers security and privacy.

Is Zcash a fork of Bitcoin? Zcash is, in fact, a fork of the Bitcoin source code. But by utilizing zk-SNARKs to provide additional privacy features, it departs greatly from Bitcoin.

The Background of Zcash

In 2013, Eli Ben-Sasson and Matthew Green published the Zerocoin white paper, to which several academics and cryptographers contributed. The committee made suggestions because they thought Bitcoin didn’t give users enough privacy.

Zerocoin uses the codebase of Bitcoin because it was once intended to operate with its blockchain. The project was launched in October 2016 after Zooko Wilcox started working on it in 2015.

With assistance from the nonprofit Zcash Foundation, Wilcox serves as CEO of the Electric Coin Company (ECC), whose developers strive to advance the Zcash network. The freshly created ZEC that the Zcash protocol releases funds the work of the Electric Coin Company and the Zcash Foundation.

Important Zcash Features

Zcash shares several features with Bitcoin because it runs on a modified version of its code. Like Bitcoin, there is a limit of 21 million coins in the total quantity of ZEC. Through Zcash mining or the proof-of-work (PoW) consensus mechanism, new ZEC are created.

Bitcoin was intended to be “pseudonymous,” as opposed to totally anonymous, as wallet address and transaction details are publicly available on the blockchain. Zcash offers users the ability to select “shielded addresses,” which are addresses that are hidden from view on the Zcash blockchain, providing an additional layer of privacy. Users may also continue using “transparent addresses,” which are publicly recorded.

The “Zcash ceremony” or “Zcash trusted setup,” which took place during the blockchain’s creation and needed a trusted group to produce a master public key for the blockchain, is another distinctive characteristic of the Zcash network.

To prevent Zcash from being manipulated in the future, the group was obliged to delete any data associated with the master key when the setup was finished. Various problems with this design include the lack of evidence that the setup procedure went as planned or the possibility of critical data being lost.

The Function of Zk-SNARKs and Zero-Knowledge Proofs in Zcash

A user can demonstrate that a transaction is legitimate and complies with network regulations using zero-knowledge (ZK) proofs, which allow for a unique transaction method without disclosing any details about the sender, recipient, or transaction amount. This innovative method makes sure that transactions stay anonymous even when they are completely validated on the blockchain.

Zk-SNARKs, or Zero-Knowledge Succinct Non-Interactive Argument of Knowledge, are a component of the Electric Coin Company’s Zcash ZK-proofs. With this innovation, users can still enjoy the anonymity they were promised when their shielded Zcash transactions are encrypted on the Zcash blockchain and validated by its consensus mechanism.

How is Zcash (ZEC) Operated?

Zcash transactions use transparent addresses (t-addresses) or anonymous shielded addresses (z-addresses). A transaction made by two Zcash users using their respective z-addresses is private and anonymous, meaning that the origin and destination of the transaction are hidden from anyone monitoring blockchain activity. Zk-SNARKs guarantee that the blockchain may still be used to verify and encrypt the transaction.

The transaction’s source is visible when money is sent from a t-address to a z-address and vice versa. It is noteworthy that there are frequent doubts about the total anonymity of cryptocurrencies such as Zcash and Monero. In 2020, for instance, researchers asserted that 99.9% of Zcash transactions could be tracked.

Similar to Bitcoin, Zcash’s blockchain is powered by a proof-of-work (PoW) consensus process that secures and verifies transactions. But unlike Bitcoin, Zcash employs a method called Equihash to verify the quantity of RAM (random access memory) that miners utilize to participate in blockchain security.

It is said that the Zcash network and consensus process operate slightly more quickly than Bitcoin. The number of Zcash transactions per second (TPS) varies from six to twenty, with the speed being determined by the proportion of transparent to shielded transactions. Because shielded transactions are not supported by most cryptocurrency exchanges, the bulk of Zcash transactions are transparent.

Zcash Enhancements and Advancements

Zcash introduced Halo, a brand-new zk-SNARK, in 2019. This ZK-proof, dubbed “trustless recursive,” aims to tackle the problems of scalability and “trusted setup.” September 2020 saw the public release of the Halo 2 source code.

In the past, zk-SNARKs needed a reliable configuration, similar to what happened when Zcash was introduced. The Halo 2 code eliminates the possibility of manipulation involved in having a trusted group of parties start the network and master key by enabling the creation of a Zcash network without the need for a trusted setup procedure.

In 2022, a significant sixth Zcash upgrade was implemented, incorporating elements of Halo Arc and advancing zk-SNARK technology. It transferred Zcash to the Halo proving system, eliminating the requirement for a trusted configuration and enhancing the cryptography of the protocol.

In 2020, the network also unveiled its open-source, shielded Zcash wallet and improved the blockchain to enable FlyClient and Shielded Coinbase. Miners can receive mining rewards to a z-address using Shielded Coinbase. FlyClient promotes cross-chain interoperability and opens up use cases for light clients with Zcash.

In 2020, Zcash carried out its first halving, which decreased block rewards from 6.25 ZEC to 3.125 ZEC. It also introduced the Canopy upgrade, which eliminated the contentious “Founders Reward” and created a development fund. It is projected that the second Zcash halving will take place in November 2024 (the precise date will depend on block production rates).

How to Purchase Zcash

ZEC may be found listed on numerous significant cryptocurrency exchanges, peer-to-peer (P2P) trading platforms, and decentralized exchanges (DEXs). To place a buy order, users must first open an account, deposit money (often through a bank transfer), then locate the ZEC trading pair.

To use a DEX, you must link a cryptocurrency wallet and exchange another cryptocurrency for ZEC. P2P marketplaces search for sellers, negotiate a price and mode of payment, then carry out the ZEC transaction themselves.

However, because to regulatory examination of the privacy coin, ZEC may have been delisted from some cryptocurrency exchanges in some locations.

Zcash’s Future

Despite the fact that the designers of Zcash did not intend for it to, the cryptocurrency industry has criticized Zcash for its ability to enable illegal transactions. Its provision of anonymous transactions puts it under regulatory examination, and it has been removed from several exchanges along with other privacy coins due to worries that hackers are abusing anonymity and privacy.

Like many others, it’s a big, energy-intensive blockchain that needs to improve its scalability. In 2021, Zcash did announce that it would switch to a proof-of-stake (PoS) consensus mechanism. Those ideas still seem to be in the works as of 2024, with Zcash moving to a hybrid consensus mechanism initially, then ultimately to pure PoS.

Positively, some think that Zcash’s privacy features increase its worth and that there will be a growing need for coins and blockchains that prioritize privacy as the cryptocurrency market expands. Developers of Ethereum and organizations like JPMorgan are investigating the advantages of zero-knowledge technology for their own undertakings. It remains to be seen, though, if Zcash can get past any legislative obstacles and become widely accepted to seriously compete with conventional forms of cash in day-to-day transactions.

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