Investigating the Top 50 Cryptocurrencies, Part 35/50: ZCash

ZCash is an anonymous cryptocurrency that uses zero knowledge proofs to verify transactions while keeping the sender, recipient, and total value secret.

Anonymous cryptocurrency is one of the most revolutionary ideas in all of blockchain. When you are not only able to transact with low friction across the internet, but can do so with total privacy, you gain more freedom and liberty.

Regardless of your political orientation, one thing is clear - private cryptocurrency transactions move the power away from governments and give it to individual people.

The elephant in the room is that it seems like it would be hard for a country to tax its citizens if people used private cryptocurrencies… this is an issue that I expect will become a huge deal at some point. I will talk about this more later in the article.

ZCash has a lot of similarities with Monero. While it isn’t quite as popular as that token, ZCash is right at rank 20 by market cap right now. There’s just over a billion dollars invested into it, a huge sum of money for any blockchain project.

About This Series + Disclaimer

This post is part of a new series where I investigate each of the top 50 coins by market cap (based on coinmarketcap.com's rankings on October 11, 2017). My goal is to help steem’s userbase become the most knowledgable blockchain community in the world.

Disclaimer: I am not an investment expert and will not be providing investment advice. I will teach you about the top 50 coins, and you can do what you want with that info.

The ZCash Project

This project has a long history with several other blockchains preceding it. It started as a blockchain based off of Bitcoin called Zerocoin. The idea was that people could sell their Bitcoin for Zerocoin and then transact more privately with the latter token.

After several technology improvements made the Zerocoin technology obsolete, the development team moved to a new token called Zerocash.

A few years later, history repeated itself with Zerocash being made obsolete to ZCash. Now that ZCash has more than a billion dollar market cap, it seems likely that it will remain in circulation for a long time to come.

Added Vulnerabilities

The fact that ZCash is anonymous means that it has additional vulnerabilities compared to Bitcoin. If anybody was able to successfully create counterfeit ZCash tokens and transact with them, there would be no way to identify that it happened. The transacts are so private that it would obscure such an attack.

_{source: unsplash / Niels Steeman}

That means it’s absolutely critical that this technology is robust. Vtalik Buterin has been writing about the underlying “zkSnark” technology recently on his blog. It seems like the experts in the space have faith in the veracity of the zkSnark tech.

Implications of Private Currency

When we think about what it means to have anonymous transactions on the blockchain, we first need to remember a basic fact: Cash is anonymous.

Here’s an example: You give me a $10 bill to chip in for some pizza and drinks on Tuesday. Then I take that cash and give it to my dealer for a gram of marijuana on Wednesday. He takes that and spends it on a candy bar, then a beer later that night… by Sunday, the transaction history is gone, it’s like dust in the wind.

You can’t look at my “transaction history” for cash. I have no idea who held the dollars in my physical wallet prior to me.

_{source: unsplash / Allef Vinicius}

Bigger transactions are more subversive. I have heard hypothetical stories 😄 of musicians accepting payment for gigs in cash and then not declaring that money on taxes… the government has little way to know about this if it’s only a small portion of the person’s total income.

The truth is that a few hundred dollars in cash gigs paid under-the-table won’t make it onto anybody’s radar. But cash has a basic limit - it’s a physical object that must be handed over in person to be transacted anonymously.

If I’m touring with you for a year and earning $50,000, it’s probably not a good idea to try and do it “under the table.” There will be too much evidence that I’ve been earning money and spending it, and that turns into tax fraud real quick.

With ZCash, it is likely that some people will do the equivalent of earning a full living “under the table.” This happens already at small jobs - the aforementioned gigging artists, or perhaps illegal immigrants who work at restaurants, etc etc - but what happens when people start anonymously transacting hundreds of thousands of dollars?

_{Whales may use ZCash in subversive ways… source: unsplash / Steve Halama}

It’s hard to overstate how big a deal this is. Few people will blatantly buck the system and declare $0 on taxes. But what if somebody, we’ll call her Becky, earns $300k in ZCash and only declares $200k on the tax form?

If the government can’t see the income, it becomes much harder to verify. You could try to monitor the inputs and outputs of the currency - who is buying and selling Zcash tokens, and where is that money coming/going? But it’s nowhere near as easy as the current “shooting fish in a barrel” scenario of our digital banking system.

The governments of the world are unlikely to take this sitting down. However, simultaneously, many moderate power players in government circles may be tempted to use the technology of ZCash/Monero/etc for their own means… and so it’ll be hard to gain full momentum to shut it down. Whatever happens, it’s likely to be a legal mess and somebody will probably end up in jail before it’s over.

There’s no way to be sure about what will happen… but I’m excited to watch from the sidelines.

Token Distribution

ZCash issues tokens just like Bitcoin does, giving away a bunch with every block that is mined. The only difference is that a percentage of the new tokens are automatically sent to the “founder’s fund” which goes to the core developers and investors of the project.

The founder’s cut starts at 20% (which adds up to a lot of money) but goes down over time until it’s 0% within four years. This is an interesting model for rewarding the core team of the project… Considering that many other projects allocate 20+% of the total tokens to their developers, I’d say that the dwindling founder’s share is pretty reasonable.

The Team Behind ZCash

Here are a few of the power players behind ZCash… all photos are from the ZCash website.

Zooko Wilcox, CEO & Founder

Nathan Wilcox, CTO

Nathan is ”dedicated to open secure technologies and has over 10 years of experience in software development, performance analysis, and security audits.” (source) Prior to working with ZCash, he was a security auditor for Least Authority.

Jack Gavigan, COO

Jack has been working with the ZCash team ever since it was still called Zerocoin back in October of 2016. Prior and concurrent to his work with blockchain, he consulted with his own Gavigan Ltd. for a variety of financial and technology companies.

Market History

ZCash is doing well.

Slow and steady is what I like to see. Without much hype or any huge fluctuations, this is a chart that suggests a well managed token that is slowly growing into its own potential… or at least that is what I am seeing.

Final Thoughts

I like ZCash. It is cool for several reasons:

(1) Little drama so far in its first year of development.

(2) Private cryptocurrency is like cash but digital.

(3) This kind of blockchain project will inevitably lead to cyberpunk-esque battles between governments and the citizenry, and it will be interesting to behold.

Overall I’m excited to see what the future will be for ZCash. Anybody who has an interest in private cryptocurrency transactions should absolutely consider using this token.

What do you think about ZCash?