Zcash (ZEC) Things You Need To Know Before Investing

Riya KapoorApril 22, 2022

3 minutes read

Table of Contents

What Is Zcash (ZEC)?

Zcash (ZEC) is a decentralized cryptocurrency focused on privacy and anonymity. It uses the zk-SNARK zero-knowledge proof technology that allows nodes on the network to verify transactions without revealing any sensitive information about those transactions.

Contrary to a common misunderstanding, most cryptocurrencies on the market, including Bitcoin (BTC), are not anonymous but rather pseudonymous. At the same time, they do not explicitly reveal the identities of their users, and each user has their public address or addresses, which can be traced back to them via the methods of data science and blockchain forensics.

Zcash transactions, on the other hand, still have to be relayed via a public blockchain. Still, unlike pseudonymous cryptocurrencies, ZEC transactions do not reveal the sending and receiving addresses or the amount being sent by default. However, there is an option to reveal this data for auditing or regulatory compliance.

Zcash was first released on October 28, 2016, originally based on Bitcoin’s codebase.

Who Are the Founders of Zcash?

Zcash was founded in 2016 by cypherpunk, computer security expert, and entrepreneur Zooko Wilcox-O’Hearn. He is also the founder of the for-profit Electronic Coin Company (ECC), which manages the development of ZEC.

Wilcox-O’Hearn has spent more than 25 years in cryptography and information security and has contributed to many projects, including the now-defunct electronic money firm DigiCash, peer-to-peer data storing software Mojo Nation and the Tahoe Least-Authority File Store filesystem.

He also founded Least Authority Enterprises, a technology company focused on improving digital security and preserving the fundamental right to privacy and co-invented the BLAKE3 cryptographic hash function.

What Makes Zcash Unique?

Zcash’s main advantage lies in its optional anonymity, which allows for a level of privacy unattainable with regular, pseudonymous cryptocurrencies like Bitcoin or Ethereum.

ZEC transactions can be sent in two ways: transparent and shielded. Transparent transactions work in the same way as in Bitcoin, whose codebase ZEC was originally based on: they are sent between public addresses. They are recorded on an immutable public ledger (the blockchain). All essential information about these transactions is available online for anyone to see, including the sending and receiving addresses and the amount sent.

These public transactions do not overtly reveal user identities: public addresses are the only identifiers an outside observer can access from the blockchain. However, through the efforts of data scientists and law enforcement over recent years, the methods of blockchain analysis have been developed to the point where an interested party can fairly reliably connect a public address on a blockchain to the real-world identity of its owner essentially making private transactions impossible.

On the other hand, Shielded ZEC transactions leverage the technology of zero-knowledge succinct non-interactive arguments of knowledge, or zk-SNARKs, to enable completely anonymous transactions to be sent over an immutable public blockchain. The fact that the transaction has happened is recorded on the ledger, but the sending and receiving addresses and the amount sent are not revealed to the public.

How Many Zcash (ZEC) Coins Are There in Circulation?

Overall, Zcash tokenomics is similar to that of Bitcoin: it is a scarce mineable token with a total supply limit of 21 million coins.

New ZECs are created in the form of “block subsidies”: whenever a new block is mined and added to the end of the blockchain, a certain amount of coins is minted and split into “miner subsidy” and “founders’ reward” at a ratio of 80 to 20 percent respectively. The block subsidy is halved at regular intervals to slow down the issuance rate as the total supply of ZEC approaches its limit of 21 million.

The miner subsidy goes to the miner who has mined the latest block. The founders’ reward is distributed between Electronic Coin Company (ECC) founders, Zcash Foundation and ECC itself, and its employees. On November 18, 2020, the block subsidy was halved from 6.25 ZEC to 3.125 ZEC, which was triggered at block 1,046,400. This was introduced under the ZEC Canopy upgrade, removing the Founders Reward. Instead, the remaining 20% will be divided among the Major Grants Fund, ECC, and Zcash Foundation, at 8%, 7%, and 5%. The next and fifth, ZEC network upgrade — Zcash NU5 — is estimated to go live on the testnet on September 30, 2021.