What Is Z Cash? A Deep Dive into the Payment Network

While the Bitcoin blockchain has provided tremendous utility and underpins the top-performing cryptocurrency, privacy has been a longstanding concern associated with its use.

ZCash users, on the other hand, are meant to benefit from a digital currency that manages to match Bitcoin in utility while providing a level of anonymity.

The Electric Coin Company (ECC), formerly the ZCash Company (Zerocoin Electric Coin Company), is behind the currency and has consistently improved the ZCash network. Below is an overview of all aspects of ZCash, including its workflow, innovations, coin pool, and more. Also see our article on Litecoin IRA.

ZCash Overview

As you’d expect, ZCash (ZEC) runs on decentralized blockchain technology. A scientific approach sees the use of an applied cryptographic technique, which is meant to provide increased privacy and security, thanks to the use of shielded addresses. For this reason, ZCash is often heralded as a privacy coin.

ZCash coins began on the fundamentals of open source code, which used a workflow remarkably similar to that of Bitcoin.

When the developers created ZCash, the aim was to have a targeted focus on the principle of anonymity. With the implementation of a kind of zero-knowledge proofs known as zk-SNARKs, this goal would become realized.

With zk-SNARKs in the mix, the blockchain network nodes can get transactions validated without the need to disseminate transaction details (metadata).

For the ZCash platform to verify private transactions, public parameters are required. With them present, it becomes possible to construct and verify the underlying transactions.

A trusted setup, which is a secure computation featuring multiple parties, contains the required parameters.

Note that for audit and tax regulations, the ZCash platform allows its users to share the necessary transaction information such as addresses.

Network security comes from an SHA-256 hash function known as the proof-of-work. This falls under the SHA-2 umbrella.

If you’re interested in trading ZCash, you can do so on several exchanges including Binance, Huobi Global, FTX, and BKEX. You can also consider Z Cash as part of your IRA with companies such as BitIRA.

what is z cash

ZCash Launch and History

ZCash’s launch by the Electric Coin Company took place on October 28, 2016. Zooko Wilcox-O’hearn was the founder of the company and developed the ZCash protocol alongside brilliant minds from Technion, Tel Aviv University, MIT, and John Hopkins University.

Funding for the initial ZCash protocol was provided by an impressive $3 million that the ECC raised.

Between 2016 and 2018, ZCash would release the “Sprout Series” of updates, which included Overwinter and Sapling, two core protocol upgrades.

In March 2017, the non-profit Zcash Foundation would be launched. The Founders’ Reward (more on that later) provided an initial endowment of 273,000 for the launch.

Electric Coin Co had a very successful launch all things considered. There was so much hype surrounding the ZCash blockchain that ZEC was worth over $5,000 at launch.

The only downside when ZCash started was the controversy arising out of ZCash’s parameter generation ceremony, which saw six people create shards of a full master key, which was a prerequisite for ZCash to work. These keys were described as toxic waste.

How Are ZCash Transactions Handled?

As indicated before, anonymity was largely the motivating factor behind the way the ZCash digital currency works. With Bitcoin, for example, there was a pseudonymous workflow with transparent addresses. It meant that there was no escaping the disclosure of certain metadata.

The non-selective disclosure method meant that exchange amounts, recipient and sender addresses, etc. were viewable by just about anyone who could view blockchain records.

Cryptocurrencies are often heralded for the level of privacy they provide, but that’s not necessarily the case since transparent addresses and other data can be used to identify the individuals involved.

Shielded ZCash transactions provide a more secure alternative. When a ZCash transaction is done using this methodology, the transaction data and the ZCash addresses go through encryption before being stored on the blockchain.

Note that while ZCash recommends shielded transactions, users get a choice between them and standard transparent transactions.

The ZCash blockchain can process transactions between the two address types. Of course, this introduces concerns since it discounts the enhanced privacy provided by shielding one end of the transaction.

How the ZCash Blockchain Works – 9

With so many scientists at the fore of the creation process, the digital currency is heavily built on scientific principles.

First, there are different transaction types that all provide varying levels of financial privacy to blockchain users. These are as follows:

  • Private transactions from a z-address to another z-address – While these show up on the public blockchain for a record that the transaction happened and the required fees were paid, the transaction, address, and memo fields are all encrypted via zero-knowledge cryptography.
  • Deshielding transactions from a z-address to a t-address or shielding transactions from a t-address to a z-address – There may be scenarios in which an address owner may wish for a third party to have access to certain details. This could be for compliance reasons.
  • Public transactions from a t-address to another t-address – Transactions here are much like Bitcoin counterparts.

For reference, shielded addresses are known as z-addresses while transparent addresses are known as t-addresses. These are more than just names as transparent and shielded addresses are prefixed with “t” and “z,” respectively.

Core Capabilities of ZCash

At its core, ZCash has certain capabilities or attributes that define it and the way it works. These are covered below:

  • Viewing Keys – Instead of using the standard workflow for fully shielded transactions, an address owner may wish to disclose transaction information for auditing reasons.
  • Payment Disclosure – A sender or receiver can choose to openly display transaction-specific details such as the value while obscuring other information such as the address.
  • Transaction Expiration – To mitigate any potentially severe impact associated with non-mined transactions, ZCash supports transaction expiration. If the transactions are not mined within 50 minutes, they expire and the associated funds become unencumbered.
  • Multisignature Transactions – There is also the capability for transactions requiring multiple signatures. If required, more than two parties must agree before any funds are transferred. The downside is that shielded transactions are not supported for these.
  • Low Fees – Quick transactions are supported and the fee requirement is as low as .0001 ZCash.
  • Encrypted Memos – All shielded transactions include a memo field, which allows the sender the option of sending any essential insights to the receiver. This information is fully encrypted.
  • Private Transaction and Addresses – Thanks to zero-knowledge proof technology, exchanges can be completed with private details obscured from the public view.

The ZCash Foundation

The ZCash Foundation was established to ensure that both the protocol and open network remain both diverse and decentralized. Its funding structure sees the ZCash Dev Fund being the primary source of income.

This fund was created in 2020 with the sole purpose of providing capital for ongoing ZCash developments. The foundational focus is on three primary areas, which are covered below.

Science

Scientific activities are a non-negotiable requirement for adequately supporting the technical decisions to be made for consistent improvement.

These activities include empirical measurement, intense validation exercises, and continuous innovation.

A foundational aim is to maintain this kind of activity to the greatest degree possible.

The ZCash Community

While there is and has been a ZCash following at play so far, the foundation still aims to support the continuous expansion of ZCash. The intention is for it to become an even larger pool of stakeholders, albeit one that remains both healthy and accountable.

The ZCash Protocol

Both the open network and the protocol that powers it are invaluable pieces of the ZCash puzzle.

The privacy-focused infrastructure should be improved upon and maintained by a group of experts and enthusiasts who are committed to maintaining financial privacy. Another foundational aim is to support this initiative consistently.

ZCash Mining

ZCash also relies on mining to introduce new coins into the ecosystem. The mining process is rooted in a proof-of-work cryptographic technique.

Here, special purpose computers are used by different miners and they compete to solve complex mathematical equations. The problems are defined by Equihash hashing algorithms.

The first miner who can ascertain the solution is given the block reward after having opened a new block. Before its series of upgrades, only GPUs could be used to carry out these mining tasks. However, with the Antminer Z9 Mini release in 2018, ASIC machines have been deployed on ZCash’s network, leading to over 10 times growth.

Feasibility in Profitability

To determine how profitable ZCash mining is going to be, an accurate calculation must be completed, factoring in revenue and expenditure (further divided into CAPEX and OPEX).

Publicly available mining calculators can be used to handle revenue calculations. Some of the factors that must be considered during these calculations are the potential ZCash price fluctuations, hash rate, changes that may be effected to the block reward system, and any potential downturns that may arise from a network difficulty.

OPEX costs are rooted in overheads that miners deal with from the process. These include mining pool costs, electricity, etc. Some miners are attempting to generate newly minted coins using renewable energy, while others attempt to find and use low-cost power alternatives to avoid affecting processing power negatively as they cut costs.

CAPEX costs are more rooted in longer-term investments and what each such cost requires miners to plan for. While the typical heavy GPU machines previously required are no longer the only option, mining hardware still needs to be efficient, robust, and up to date.

Hardware and Hosting Concerns

As indicated before, ZCash mining is now preferably done using ASIC efficient machine designs. Mining pools and professional miners have now largely gone this root. For reference, ASIC means application-specific integrated circuit.

These units achieve greater efficiency because of their design being more geared toward the advanced applied cryptography that ZCash (ZEC) requires than it is other tasks. While you can host these at home, you can also have a mining hosting site work for you. Such sites help you to manage maintenance, electricity, setup costs, etc.

Mining Pools

Instead of solo mining, you may want to consider mining pools. Since there is a better hash rate contribution, pools are conducive to a more consistent stream of income. Before you settle on which pool you want to join, consider location, support, fees, ping time, pay-out mechanism implementation, etc.

ZCash Wallet Setup

Receiving payouts requires a ZCash address and a ZCash wallet. Remember that you want to utilize the shielded transaction functionality as much as possible. Not all mining pool options support shielded addresses though so ensure you check before you settle.

Validating ZCash Transactions

In the case of shielded transactions, senders must construct a proof that demonstrates a few elements for the validation to occur. These are:

  • Proof that the private key of the input notes is held, which is a statement of spend authority
  • Input value sum to output values per transaction
  • Private keys are linked to a signature cryptographically, which prevents modification by any party without the express knowledge of the key.

The Founders Reward

This is another area of differentiation between ZCash and other cryptocurrencies. Up to 2020, ZCash founders received what was known as the Founders’ Reward. This amounted to 20% of all created ZEC.

10% of this allotment was agreed to be set aside for the development of the ZCash Foundation. Therefore, miners’ block rewards would be only 80% of what they helped produce. However, with the halving of the reward in 2020, miners went on to receive 100% of the rewards.

Halo and Halo 2

In 2019, ZCash launched a zk-SNARK known as Halo, which was meant to address two challenges that the privacy coin faced in the form of trusted setups and scalability.

The trusted setup workflow was briefly covered above and involved six actors creating a master key and generating what was deemed as cryptographic toxic waste, which needed to be destroyed.

If no one were to destroy it or if the master key were to be found out, then unscrupulous entities could begin to start creating ZCash coins without anyone’s knowledge.

With the creating of Halo, the toxic waste generation would be eliminated. Instead, it uses a process that allows users to validate that no one involved in the initial creating of the zero-knowledge proof system created a backdoor.

Halo 2, which was introduced in 2020, used PLONK to build atop Halo. Previously “Sonic” would’ve been used for transaction verification. However, with PLONK’s introduction, there was greater efficiency and better scalability.

ZCash Wallet

The development of an ECC Reference wallet began in 2019. The idea behind the light client wallet was to allow Sapling-based shielded transactions to work on mobile devices. This was initially a blueprint and the hope was that others in the community would build on it and provide feedback as they did so.

A shielded-first, open-source, fully functional ZCash wallet would be launched in June 2020. Of course, its software development kit (SDK) would be available for demonstration, testing, and further community improvements if desired.

The intention was to have at least 40% of the world able to understand the ECC reference wallet. A part of this initiative saw the community chip in to have the wallet localized into five different languages.

Additionally, the Unstoppable multi-currency wallet would be the first to allow Android and iOS support of ZCash. The SDKs would be a big part of this innovation.

The Heartwood Network Upgrade

One month after the June launch of the wallet, the Heartwood Network Upgrade activation would take place. This allowed for FlyClient support, as well as support for shielded Coinbase.

The latter allowed for ZCash users to capitalize on shielded ZEC at creation time, which mitigated any potentially negative privacy implications. Additionally, miners got the ability to get their rewards immediately sent to a z-address.

FlyClient’s inclusion allowed for a more efficient way of verifying blocks on the blockchain. This meant greater usability for ZCash which would likely translate to a greater market. Additionally, cross-chain efforts would lead to interoperable designs such as an Ethereum compatible token known as tZEC.

Potential Challenges to Consider

All cryptocurrencies have challenges they must deal with on launch. As far as ZCash goes, there are likely security vulnerabilities that the team is not exactly familiar with.

While Halo 2 has come a long way, it has not completely eliminated the use of trusted setups. However, Josh Swihart, ECC’s growth VP has indicated that the idea is to get rid of them entirely.

Considering that ZCash also aims to become a global exchange standard, it needs to demonstrate greater potential for scalability.

There’s also the matter of the delisting of privacy coins, which is a challenge that exchanges impose on ZCash.

Much of this has to do with privacy features built into the designs that regulators are concerned about. This creates the need for a delicate balancing act since privacy protection is at the core of ZCash.

ZCash Supply

There is a maximum supply of 21 million ZEC. Well over the halfway mark have already been mined. At the time of writing, new blocks are created about every 75 seconds. This rate exceeds Bitcoin’s eight times over.

Final Remarks

ZCash’s focus on privacy made it attractive to users and investors alike. Though it has made huge strides, the future also looks bright with planned innovations such as a transition to a proof-of-stake mechanism from the existing proof-of-work one.

The expectation is that more users are going to get on board and that ZEC should become a standard that is used to pay for various transactions globally. This should be a welcome change if so, thanks to the secure design.

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Peter Grantham

Peter has been an avid investor in for all his life. Over that time he has accumulated a wealth of knowledge and experience including stocks, bonds, real estate, retirement, precious metals, cryptocurrencies and business investments. You can get in touch at my email: info@mygoldsilverbitcoin.com As the owner of this site "My Gold Silver Bitcoin", he aims to bring his knowledge and experience to new investors and seasoned veterans. My mailing address is: 41847 Moen Grove, Greenton, Arkansas, 80976

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