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What is Zcash & How Does it Work? - ZEC for Beginners

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Zcash is a cryptocurrency, powered by a decentralised blockchain whose primary objective is to provide a privacy-focused digital currency solution. It ensures the anonymity of the users and the transactions that occur on the blockchain. It uses zero-knowledge proofs to verify transactions while concealing the personal information of the user as well as transaction data. It's been built on Bitcoin infrastructure and shares many characteristics with the first cryptocurrency.

Despite being similar to Bitcoin in many respects, Zcash offers increased anonymity, privacy, and fungibility to its users. Many consumers who want to use a cryptocurrency seek anonymity, which has become a rare feature due to a multitude of reasons. It is an attempt to deliver a robust and functional solution to the privacy-conscious audience, ZEC denotes the cryptocurrency.

Why Was Zcash Invented?

Established by Zooko Wilcox O-Hearn in 2016, Zcash was a response to an ever-increasing demand for more privacy and anonymity. After the massive success of Bitcoin, hundreds of cryptocurrencies were created, but soon after, cryptocurrency enthusiasts and users realised that the transactions could be easily tracked, revealing their identity. It was designed to address that concern with additional security and privacy layers added to the blockchain and how it works.

Zcash followed the fundamental Bitcoin model of using a public ledger but encrypted the information about the transactions and users. It means that while transactions are recorded in the ledger, they are only visible to the authorised users. This solves a major pain point of thousands of cryptocurrency users around the world who were conscious about the security of their data and financial information on the blockchain.

How Does Zcash Work and What Technology Is Behind It?

Most of the cryptocurrencies provide their users with a public address, which sort of acts as your account number. If someone wants to send you digital currency, they have to use that public key, consisting of alphanumeric characters. Initially, it may not be particularly identifiable, but over time as several transactions occur, the public key can be traced back to these transactions. This loophole can lead to a breach of personal identity information.

To overcome these privacy concerns, it uses a cryptographic method named zk-SNARKs, which means Zero-knowledge Proofs. This method enables both sender and receiver to carry out transactions without revealing each other's blockchain addresses or keys. It also makes those transactions untraceable on the blockchain by encrypting all the payment addresses and the transaction amount.

Since the payment keys recorded on the blockchain aren't real addresses, it becomes impossible for anyone to track down the transactions and individuals associated with those transactions. This is how it also separates itself from other cryptocurrencies like Bitcoin. Public addresses and transactions related to those addresses are always visible, which can lead to a privacy breach.

Is Zcash Real Money?

There are hundreds of services, retailers, NGOs, and vendors who accept ZEC as a viable cash alternative. If you are looking to spend your ZEC to make a purchase, you can go to the Zcash Community website. It lists down hundreds of merchants categorically who are currently accepting the digital currency. These include apparel brands, products, internet services, VPNs, medical services, legal services, food and beverage retailers, travel, home renovation, NGOs, electronics, and more.

You can purchase almost anything you want with ZEC. Despite a long list of merchants, ZEC isn't an exact replacement for cash, which is accepted pretty much anywhere in the world. Its popularity and acceptance as a viable digital currency is growing, and it's expected to become a more ubiquitous currency alternative in the future.

Fees & Expenses

In terms of dollar value, the average transaction fee at the time of writing this piece is negligible at $0.0000039. Even if there is a lot of traffic on the network, the fee would remain close to zero. The peak of the average transaction cost of ZEC was hit during April of 2018 when it reached close to the $0.0060 mark - still less than a cent. Apart from being anonymous, Zcash ensures highly affordable transactions for senders and receivers, which is a huge plus given Bitcoin transaction fee is around $2.5 per transaction with quite a delay.

Apart from the network fee, if you are purchasing ZEC from a cryptocurrency exchange or a trading service website, you may have to incur commissions and other charges. Some of the cost can be attributed to service charges while some of it is withdrawal commission. These costs are primarily dependent on the service you're using, your mode of payment, your region, and the amount you're going to send or receive.

What Are the Benefits of Zcash?

Zcash follows the Bitcoin framework, so it offers all the benefits of the most popular cryptocurrency. In addition to that, it has some unique advantages of its own:

Negligible Fee

Sending and receiving ZEC is highly affordable as the average transaction fee is even less than a hundredth of a cent. Even when the network is choked with traffic and the blockchain has to validate lots of transactions, the fee remains under a cent.

Anonymity Focused

It uses a technology called Zero-knowledge Proofs, which enables the network to process and verify transactions without revealing the users' public payment addresses and the transaction amount.

Censorship & Attack Resistant

Since the blockchain is decentralised, the network is censorship and cyberattack resistant inherently. There is no central authority that has undue influence over how the network is operated.

Audit Possibility

If the user chooses to reveal their information to a third party for a regulatory audit or any other purpose, they can do so. This allows them to maintain privacy while complying with the law.

Real World Acceptance

It is a viable currency alternative as it is accepted by hundreds of merchants, service providers, vendors, retailers, and NGOs. You can go to the community website to see the complete list.

Easily Accessible

Being one of the most popular cryptocurrencies means you can purchase ZEC on top cryptocurrency exchanges and trading platforms. It’s easily accessible through multiple platforms.

Can It Be Used Anonymously?

If you are conscious about keeping your personal information private, then Zcash is hands down the best option. It uses Zero-Information Proof, for processing and validating transactions, which hides the information related to both the sender and the receiver. 

It also conceals the transaction amount and makes it almost impossible to trace the transactional activity. Robust confidentiality of all the personal and financial data means there is an extremely rare chance that someone could figure out your own identity. However, keep in mind that this is limited to the use of blockchain.

If you are purchasing ZEC from cryptocurrency exchanges or trading platforms, they may collect personal data from you for identity verification purposes. They have to abide by Anti Money Laundering (AML) and Know Your Customer (KYC) regulations to ensure legal compliance. You may also need to reveal your user information to government authorities to comply with regulations.

How Safe Is It?

Zcash is a decentralised blockchain featuring Zero Information Proof for anonymous transaction validation. It means that there is no central database to hack or compromise; there is no traceable public information about the users available that can lead to a data breach. This makes ZEC one of the safest and most secure cryptocurrencies you can buy on the market.

What Teams Are Working on Zcash Development?

Zcash is a project of Electric Coin, a company that focuses on creating privacy-centric engineering and science solutions for its clients. The Board of directors is headed by the founder of Zcash, Zooko Wilcox, as well as Andrew McLaughlin and Alan Fairless. The advisory board includes the founder of Ethereum, Vitalik Buterin.

The team of people who worked on the original idea was comprised of seven scientists, including the following:

  • Alessandro Chiesa - UC Berkeley

  • Christina Garman - John Hopkins University

  • Eli Ben-Sasson - Technion

  • Eran Tromer - Tel Aviv University

  • Ian Miers - John Hopkins University

  • Madars Virza - MIT

  • Matthew Green - John Hopkins University

The central team currently working on the project is the Zcash foundation registered as a public charity with the primary objective of creating a financial privacy framework that serves the users of Zcash blockchain, protocol, and cryptocurrency. The foundation also provides strategic and technical support to applications using zero-knowledge cryptography.

Which Financial Institutions Are Invested in Zcash?

Zcash is a late entrant in the cryptocurrency sphere. Due to its innovative and robust anonymity features, it has become one of the most popular cryptocurrencies you can buy today. This is why JPMorgan partnered with Zcash to provide blockchain security and an additional layer of privacy and anonymity to blockchain enterprise users. Apart from this strategic partnership, it's been funded by Fenbushi Capital, Pantera Capital, and Digital Currency Group.

Moreover, it has also been able to forge long-term relationships with hundreds of vendors, NGOs, merchants, services, and retailers to enable users to use ZEC to buy pretty much anything. If the project continues this course, it will have a chance of breaking into the top five cryptocurrencies joining the ranks of Bitcoin, Ethereum, and XRP.

Zcash Mining

Mining is the method that allows cryptocurrencies like Zcash to process and validate transactions while keeping blockchain safe. It includes adding new blocks to the blockchain by verifying new transactions and keeping a chronological record. 

After the transaction is approved, blocks are broken down, keys are generated, and the ZECs are transferred. Zcash miners also have the option to create new ZEC tokens through computing power, which requires them to find solutions to cryptographic problems. The reward provided in terms of ZEC is based on the unanimous consensus of the Zcash network.

Zcash Wallet

Cryptocurrency wallets are physical devices as well as software applications that are used to store digital currency tokens securely. If you are looking to keep your ZEC coins safe and secure, you can use one of the following wallets:

Wallets for Shielded & Transparent Address Support

Wallets for Transparent Address Support Only

  • Atomic Wallet

  • BitGo

  • Cobo

  • Coinbase

  • Coinomi

  • Exodus

  • Freewallet

  • Jaxx Liberty

  • Ledger

  • Trezor

  • Trust

Is Zcash Worth the Investment?

In the past few years, Zcash has seen tremendous growth in terms of strategic progress and its price. It offers a unique solution that no other cryptocurrency has taken seriously. The project has investors, supporters, and a robust community that believes in it and is willing to stand by it. Regardless of the success or failure of currency, investment and trading are based on market sentiment and future outlook.

Since there's a lack of regulation and stability in the cryptocurrency market, the price can be unpredictable and volatile, making the crypto investment a high-risk high reward affair. That's why it is recommended that you should only invest in ZEC what you can afford to lose while diversifying your portfolio to manage your risk effectively.

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Frequently Asked Questions

How can I buy Zcash?
ZEC is easily accessible on all the popular cryptocurrency exchanges and trading platforms. You can buy it using traditional payment methods.
Which wallet is safe for storing ZEC?
If you want to keep your address private, then your options are only three - ZecWallet FullNode, ZecWallet Lite, and Shielded Guarda. However, if you're not interested in using the shielded address feature, you can use BitGo, Coinbase, Atomic Wallet, Exodus, and many more.
How can I mine Zcash?
Mining ZEC is similar to mining Bitcoin. You need a powerful computer that can solve complex problems providing the right solutions. ZEC follows the Proof of Work protocol.
Should I invest in Zcash?
Cryptocurrency prices are unpredictable and subject to volatility at all times. They follow the market sentiment, and it can result in sudden hikes and drops, which can go both ways for you. That’s why it is recommended that you invest with caution and diversify your portfolio to minimise risk.
How much is the Zcash transaction fee?
Next to nothing. The highest average transaction fee that was recorded for ZEC was $0.0059. That’s half of a cent. So, even if there is a lot of traffic on the blockchain, you don't need to worry about the transaction cost.
Can Zcash be used to make everyday purchases?
Yes. You can view the list of all the merchants that accept ZEC on the community website. There are hundreds of them and have been sorted categorically for convenience.
Is Zcash a decentralised blockchain?
It’s just like Bitcoin with added encryption and privacy features. Like the government or board of directors, no central authority can exercise absolute control over blockchain matters.
How is Zcash different from other cryptocurrencies?
It uses Zero Information Proof, which shields the sender and the receiver's addresses, making it almost impossible to trace the transaction.