Zcash Protocol Review: Providing Financial Privacy to Public

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Let us suppose this bitcoin address belongs to a shopkeeper. The shopkeeper puts this address on a poster behind the shop in the form of a QR code. Now, customers can scan that code with their bitcoin wallet application to pay for their bought items. 

The problem is anyone can look for that address in the bitcoin blockchain and can see every incoming or outgoing transaction of that address and the total bitcoin balance of the address. Anyone with that information can get an idea of how rich the shopkeeper is and how successful the shop has been in the past. This information can be exploited by bad actors such as robbers for their personal gains. Also, if we are sitting next to someone while they pay for their bought items, then we can get the idea of how rich the customer sitting next to us is, by seeing the most recent incoming transaction to the shopkeeper’s address and then looking up the balance of the sending address i.e the customer address.

So, Bitcoin does not provide full financial privacy, and your average innocent user gets no privacy whatsoever. There are various examples like this, where user privacy can be breached and information gained through it can be exploited by bad actors for their personal gains. Zcash protocol solves this problem of financial privacy for the users. It allows users to send money anywhere without risking their privacy. 

What is Zcash and How does it enhance privacy?

Zcash is a privacy cryptocurrency that provides anonymous value transfer using zero-knowledge-proof cryptography technology. Zcash is a bitcoin fork and most of the Zcash code is built from bitcoin’s original open-source code but there is a key difference that it uses encryption techniques in payments for privacy.

The protocol provides two choices to the user when they transact, they can choose a shielded address for their transaction which will be fully anonymous or they can choose a transparent address where their transactions will be fully visible on the blockchain.

When the user uses a shielded address for their transactions, details of transactions are not available for the public to see on the blockchain. Shielded addresses transaction information is encrypted and is not visible to the public. All the transactions that are executed by transparent addresses are visible publicly on the blockchain.

How does Zcash Works?

The above diagram shows the whole process of Zcash transactions

Zero-knowledge proofs are required to be generated when the user uses shielded addresses for transactions. It allows others to verify transaction details by keeping them private and not revealing them to the public. Shielded addresses always start with a 'z' and are called 'z-addrs'.

Similarly, when the user uses transparent addresses, all the transactions interact with the Transparent Value Pool and transactions details are publicly available in the blockchain. These transparent addresses always start with “t” and are called 't-addrs'. All the details of transaction fees of both transparent addresses and shielded addresses transactions pass through the Transparent Value Pool and are easily visible in the blockchain. 

Tokenomics

Zcash token symbol is $ZEC. Similar to bitcoin, the maximum supply of Zcash tokens is 21 million. All Zcash tokens will be mined by 2032, and Zcash block rewards will get halved every four years. In the initial four years after the starting of Zcash mining, 20 percent of its block rewards will be distributed to Electric Coin Company, and 80% of its block rewards will be distributed to miners.

At the time of writing this article, the circulating supply of Zcash is 11.99 million, the price of Zcash token is 144.40 US dollars and the market cap of Zcash is 1.73 billion US dollars.

Main Features of Zcash

Low-Fee Transactions

Transactions fees on Zcash protocol are very low i.e 0.0001 Zcash. Zcash token is supported by various crypto wallets and exchanges.

Encrypted Memos  

When a user does transactions from a shielded address, a memo field is available to fill in any information. Encrypted memos allow the sender to send information that is encrypted and not available for the public to see. Messages and important information can be passed in the memo field. The Rules of compliance made by the Bank Secrecy Act “Travel” are also followed.

Viewing Keys

For the purpose of regulatory compliance or auditing, transaction details can be revealed by the owner of shielded addresses. The owner can reveal all the incoming transactions and the info in the memo field but can’t disclose the sender’s address unless any information identifying the sender's address is already mentioned in the memo field. 

Multi-Signature Transactions

Zcash also supports transactions that require signatures of multiple parties and after their approval, the funds can be sent. The shielded address cannot be used for multi-signature transactions. However, work is in progress so that shielded addresses will also be able to do multi-signature transactions in the future.

Conclusion

Financial privacy will gain importance in near future and Zcash is fully capable to provide financial services maintaining the privacy of users. It uses an advanced cryptographic technique, zero-knowledge proof to encrypt transaction details, which restricts anyone from the public from seeing the details of transactions. In the coming future, we will see many upgrades in the Zcash protocol, which will further push its adoption. As more people will start giving attention to their financial privacy, Zcash will gain more market share in this area as Zcash is the market leader in providing financial privacy.