Following years of great anticipation from the blockchain community, the Zcash genesis block has finally launched. Zcash offers a promising improvement to Bitcoin and other cryptocurrencies by offering total payment confidentiality. Currently, the entire history of digital currency transactions are posted publicly, potentially allowing outside parties to determine the identities of transaction participants through network analysis.
Through new cryptographic tools, Zcash will encrypt each transaction in order to make each coin indistinguishable from any other. By allowing for greater anonymity, Zcash aims to address the fungibility issues of other digital currencies, preventing any unit from being deemed illegitimate or less valuable because of its past ownership.
With Zcash, transactions can be shielded to hide the sender, recipient, and transaction values on the blockchain. Instead of publicly disclosing the parties or transfer amounts, the transaction metadata is encrypted and only those with the corresponding key can see the content of transactions.
Zcash users can control who can view important data, providing selective transparency. The initial monetary base is 21 million coins, of which the company is keeping 10 percent. It will split the earnings from this stake between the company founders, private investors, employees, and a foundation to work on future versions of the protocol.
Zcash is based on the Zerocash protocol and utilizes zk-SNARK proofs. This zk-SNARK technology, which stands for “zero-knowledge Succinct Non-interactive ARgument of Knowledge,” serves to ensure integrity of transactions while maintaining confidentiality. Zero knowledge proofs, which allow a party to reveal that it knows a secret without revealing anything about the secret itself, are already applied in other contexts on the Internet.
For example, zero knowledge proofs allow user passwords on a website to be verified without actually transmitting the password value to the website servers. Without depending on the cooperation of other parties, Zcash allows participants to guarantee the validity of transactions.
Though Zcash offers promising advancement for cryptocurrencies, the new underlying cryptography technology is untested and likely still needs to work through some bugs. Additionally, the large underlying proofs that allow for anonymity require a great deal of computing power. The privacy-preserving transactions are estimated to take over 2 minutes and 4 GB of RAM. Also, Zcash does not provide any additional privacy for multisignature transactions.
There are fears that Zcash may allow criminals and other bad actors to escape detection, and that the cryptocurrency may be hindered by government regulation. However, the anonymity Zcash seeks to provide does have legitimate applications. For example, financial institutions have a valid desire to hide their transactions from competitors, in order to prevent predatory trading based on their trading strategy.
Despite possible issues in regard to efficiency and regulation, the innovative underlying technology developed by Zcash marks a significant development for the proliferation of blockchain technology. Zcash has the potential to preserve the benefits of fast, cheap transactions through a decentralized ledger, while ensuring privacy and control over the visibility of transaction information.