What is Zcash? 2020 Beginner’s Guide on ZEC Cryptocurrency

What is Zcash? Crazy price fluctuations and high anonymity

On October 28, 2015, Zcash made the craziest start in the crypto world that ever existed and probably ever will. Shortly after its release on the stock markets, Zcash reached an incredible 3299 Bitcoin, the equivalent of about 2 million Euros, for a Zcash token! The very next day, however, a token was only worth 580 EUR, only to rise again to 1750 EUR shortly thereafter on 30.10.2017 and finally drop below 100 EUR on 14.11.

In the following article you will learn how these crazy price fluctuations came about, what makes Zcash so special and what criticism Zcash has to face.

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How did the initial hype about Zcash come about?

The extreme hype and the price explosion were mainly caused by a broad media campaign. Even before the Initial Coin Offering (ICO), huge expectations had been raised by (probably) dependent media and experts who had invested in the ZEC themselves and would naturally benefit from a rise in the share price. Among the influential “influencers” were Bitcoin.com, Coindesk Magazine and Bitcoin developer Gavin Anderson.

At the center of the media campaign was the high level of anonymity, which no other Altcoin had been able to guarantee in this way before. Also, the ever-increasing awareness that Bitcoin is not anonymous and that third parties can trace transactions recorded on Bitcoin’s blockchain caused the extreme hype.

What is Zcash in 2020?

Zcash focuses on anonymity and privacy. Although payments are also stored on a public block chain (such as Bitcoin and Ethereum), users have the ability to encrypt the sender and recipient, as well as the transaction amount. Zcash uses two special cryptographic methods for this purpose: the “Zerocoin-Protocol” and “zk-SNARKS” – zero-knowledge succinct non-interactive argument of knowledge.

While the zero-coin procedure enables complete anonymity, zk-SNARKS is responsible for checking the validity of the transaction.

By the way, Zcash is very strongly based on Bitcoin code. This is not surprising, since the group of developers around founder Wilcox consisted of former Bitcoin developers. According to the Zcash website, the developers were guided by the principle of conservative innovation. The guiding principle of the development was therefore: “Avoid changes to Bitcoin’s design unless there is a good reason to do so”.

What is the Zerocoin protocol and a Zero Perception Detection?

Zero Perception Detection simply means that a calculation or result can be proven without repeating it. The statement can still be considered true.

The Zerocoin protocol cryptographically encrypts the addresses of the sender and recipient as well as the amount in private transactions on the public Zcash block chain.

Similarities and differences between Zcash and Bitcoin

The most striking common feature is probably the limited number of tokens, which is 21 million. But also the “Reward Halvening” was taken over, i.e. halving the reward for mining every 4 years.

The biggest differences compared to Bitcoin are:

  • The introduction of zk-SNARK, which provides a second optional and completely anonymous transaction format.
  • The introduction of a mandatory levy of 10 percent of the mining revenue to the founders (“Founder’s Reward”).
  • This is automatically passed on to the founders.
  • The introduction of a different mining algorithm.
  • A slower adjustment of the mining difficulty.

As described above, Zcash allows both private (encrypted) and transparent transactions to be sent. Here is a short explanation: Transparent transactions take place quasi like the Bitcoin protocol. The sender, receiver and amount can be determined on the block chain. Private transactions, on the other hand, offer the described anonymity.

However, they can also be revealed afterwards with the consent of both parties, so that the transaction can be viewed by other parties.

According to founder Zooko Wilcox, the aim of this feature was to ensure compliance with criminal law provisions on money laundering and taxation. The goal of Zcash, according to Wilcox, has never been to support illegal activities.

The origin of Zcash

Originally, the Zerocoin protocol was to be integrated into the Bitcoin protocol. However, after it was clear that this was not going to happen, a group of developers around Zooko Wilcox formed to develop Zcash. For this purpose Zooko Wilcox founded the Zerocoin Electric Coin Company.

The creation itself is very curious and extraordinary. In the context of the creation of Zcash, there is talk of a “ceremony” that laid the foundation for Zcash. The ceremony required 6 different people to run software on their computers and perform various other tasks. As a result of the ceremony, private and public keys were generated.

While the private keys were to be destroyed by all 6 people during the ceremony, the public keys are still relevant today and form a basis for Zcash. The private keys are often referred to as cryptographic toxic waste, since if all 6 parts of the private key continue to exist for whatever reason, they could lead to the generation of an endless new ZEC token in secret.

However, according to Zooko Wilcox, this problem does not exist because if at least one of the participants in the ceremony successfully destroys his private key, the cryptographic garbage is rendered useless and Zcash is completely secure.

Among the participants were Zooko Wilcox and Bitcoin core developer Peter Todd (an avowed Zcash critic). Wilcox was filmed at the ceremony. Todd and two other participants filmed themselves. However, the other two people are unknown.

Criticism of Zcash

While the option to send anonymous transactions is seen by the majority of the public as an improvement over Bitcoin, other regulations and especially the ceremony are strongly criticized.

The points of criticism in detail (without evaluation by Coin Hero) are:

  • It is not verifiable whether the six participants did not act and put the cryptographic toxic waste together to generate a kind of “master key”.
  • Hackers and other attackers could have intercepted the data from the ceremony participants’ computers and now secretly generate endless new Zcash tokens.
  • Fake tokens could not be recognized by regular tokens (generated by “mining”) due to the cryptographic methods used.
  • The compulsory levy of 10 percent of the mining revenue is seen by many as greedy by the developers.
  • The manipulability of the currency is doubted. For anonymous transactions the amount is encrypted. Therefore it is also not possible to prove whether the amount actually sent corresponds to the “obvious” amount of Zcash.
  • Making transactions anonymous requires considerable computer resources (more than 8 gigabytes of memory), which not everyone has.

What do you think about Zcash? Feel free to share your opinion in the comments.

 

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