How Private Are Privacy Coins: A Closer Look at Zcash and Zclassic
“The main feature of cryptocurrencies is their anonymity.”
Bill Gates, February 2018
Not exactly. Bitcoin is only pseudonymous, with every transaction recorded and connected on its blockchain for all to see. This is why privacy coins that solve Bitcoin’s lack of anonymity form an important class in the cryptonetwork ecosystem.
Within the privacy coin category, Zcash has emerged as a leader, alongside Monero. Zcash is noted for being the first widespread application of a novel zero-knowledge cryptographic technique called zkSNARKS. It has gained support from many crypto influencers. There is even a Grayscale Zcash Investment Trust.
Zcash development is primarily controlled by the Zcash Company. As a “founders reward,” 20% of all newly mined coins in the first four years are distributed to the company’s stakeholders. This controversial reward drove developer Rhett Creighton to fork Zcash into Zclassic, deleting the 20%. And this week, Creighton is starting a new network called Bitcoin Private, which is a YAZF (“Yet Another Zcash Fork”) with 1-to-1 airdrops to existing Zclassic and BTC addresses.
Despite the privacy focus of Zcash and its forks, anonymity is actually optional for these networks. One reason is that it can be computationally expensive, taking up to 40 seconds and 3+GB of RAM, to anonymize a Zcash transaction. As a result, some Zcash wallets don’t support anonymity at all. This should improve over time, starting with Zcash’s next release.
Given the optional privacy, my partner Edwin Ong and I took a closer look at these blockchains to understand the actual practice. Please note that we are not examining the strength of Zcash’s well-regarded cryptographic approach, but rather the actual uptake of anonymity features on the networks.