What is ZEC?

ZEC is a forked chain modified based on the BTC 0.11.2 version code, which retains the original BTC pattern. Therefore, many crypto users think of ZEC as a BTC copycat coin that appeared early in the crypto market. However, in reality, there are significant differences between the two.

What is ZEC?

ZEC (Zcash) is a cryptocurrency that was launched on October 28, 2016. It belongs to privacy coins in the crypto market.

ZEC is the first blockchain system that uses a zero-knowledge proof mechanism. It provides complete payment confidentiality while still maintaining a decentralized network using a public blockchain.

Like BTC, the total supply of ZEC is 21 million. However, unlike BTC, ZEC’s transactions automatically hide the sender, recipient, and amount on the blockchain. Only those who have keys can see the transaction details. Users have full control over the keys and can choose to share them with others to view the information. In addition, ZEC can be seen as a fork of BTC, which retains the original BTC pattern.

The origin of ZEC

The origin of ZEC can be traced back to a few years after the birth of BTC when the overall trend of cryptocurrencies was on the rise. During the same period, many privacy coins such as Monero and Dash emerged to address the need for privacy in cryptocurrency transactions.

However, from today’s perspective, ZEC is not the cryptocurrency with the highest level of privacy protection, and its market value has not reached the heights of other cryptocurrencies of the same type. Currently, ZEC’s market value is 561 million USDT, with a market circulation of 12.6698 million coins. As for XMR, which is considered a representative privacy coin, its market value is close to 3 billion USDT.

Of course, this does not mean that ZEC itself does not have unique features.

Because many users consider ZEC as a fork currency of BTC, we can understand the reasons for the birth of ZEC by understanding the market demand in BTC’s early development stages.

In the encrypted transaction method pioneered by BTC, the addresses and transaction amounts of both the payer and the payee can be fully recorded. However, at that time, people believed that the on-chain transfer information and even the personal information of BTC users could still be traced. As a result, privacy-focused cryptocurrencies emerged and began to be sought after by cryptocurrency users.

The founding team behind ZEC was exceptionally strong and consisted of well-known members of the industry. Most of the founding members were from Stanford University, with advisors including Ethereum founder Vitalik Buterin and BTC core developer Gavin Andresen.

In exploring solutions for privacy protection, ZEC’s approach differed from the popular XMR at the time. Instead of relying solely on technological innovations within the transaction process to enhance privacy protection, ZEC focused on the wallets held by users themselves.

At the time, ZEC offered a relatively innovative solution to the privacy protection problem in cryptocurrency. This involved providing users with two types of wallets for their funds: transparent and private.

This was a rough privacy protection method that did not use techniques like ring signatures to interfere with and cover up transaction information on the chain, as XMR did. Instead, ZEC opted for a more intuitive approach to transaction concealment.

The Features of ZEC

The two types of assets included in the fund wallet provided by ZEC to all users are easy to understand. Transparent funds can be compared to cryptocurrencies like BTC, which are conventional non-private coins, while private funds, which are primarily based on ZEC, are encrypted using the information encryption methods mentioned above.

The private fund function of ZEC makes on-chain transaction information unsearchable unless the user chooses to grant permission, i.e., the distribution of keys.

To achieve this, ZEC employs two technologies.

zk-SNARK technology: Even if the currency’s origin and flow of funds are completely confidential, zero-knowledge proof technology can still verify that the purchasing user indeed owns the funds.

Public blockchain: ZEC uses a public blockchain for transaction display, but it automatically hides the transaction amount. ZEC holders can observe associated information by checking the key.

In addition, another feature that is well-known to ZEC users is its BTC-like issuance model. ZEC’s token supply model is extremely similar to BTC’s, both have a fixed and known issuance model, and the production amount is halved about every 4 years. And like BTC, ZEC has a maximum supply.

At its inception, ZEC was recognized by many users as a top privacy coin, taking privacy to the next level compared to XMR and Dash because the zero-knowledge proof is clearly a great innovation and progress in the privacy coin field. This is due to ZEC’s first-class team, allowing ZEC to take a big step forward in privacy protection.

ZEC’s disadvantages are obvious, namely its untraceable total supply, which is one of its many characteristics. This makes ZEC inherently risky and lacks the natural defect of overall stability like XZC’s traceable total supply.

ZEC Advantages and Controversies

Advantages of ZEC

• ZEC has a wide reach and is supported by almost all top exchanges and wallet facilities. This makes it very efficient and widely applicable for users to carry out transactions, transfers, and purchases.
• ZEC is friendly towards audit and regulatory requirements. Users can voluntarily disclose their private addresses and transactions for information-sharing purposes, satisfying audit and regulatory needs.
• ZEC is decentralized and has strong anti-attack features. It is maintained by a wide range of people and machine networks, avoiding structural flaws brought about by centralization. It does not have the security risk of centralized databases being attacked, nor does it have single-point errors. This means that no one can shut down or prohibit the use of the ZEC network.
• ZEC has complete privacy for addresses and transactions. This is also a core advantage of ZEC, as users can send and receive tokens without disclosing transaction parties and amounts. This makes ZEC transactions very secure, and of course, users themselves can choose to make their transactions public.

The ZEC Controversy

However, ZEC’s main network performance is limited due to inheriting much of BTC’s code content, such as the POW consensus mechanism and the 21 million total supply, making it almost impossible to do too much expansion, which greatly restricts the development of the project’s ecology.

Although it has achieved significant breakthroughs in anonymous privacy compared to other privacy coins when users activate the anonymous state, ZEC’s main network performance will become even slower.

Additionally, ZEC’s main features focus on high coverage and high circulation beyond privacy, but its poor network performance makes it slower than other mainstream cryptocurrencies when used for payments. Based on the same 4-year halving mechanism as BTC, many users tend to pursue ZEC’s scarcity, and the project team encouraged users to mine in the early days, which posed hidden dangers for the subsequent large-scale circulation of ZEC.

Moreover, due to the use of zero-knowledge security proof, ZEC’s proof information is exceptionally large, requiring a significant amount of CPU power to sign transactions, which also seriously affects ZEC’s main network performance.

Another issue is that ZEC’s team constantly holds 10% of the shares, which many users, especially miners, are unhappy about.

All of these issues have been long-term criticisms of ZEC since its inception, and it faces similar questioning and controversies as other privacy coins. Privacy coins can bring regulatory issues, making it convenient for illegal activities such as gambling, drug trafficking, and money laundering, which are difficult to track, and ZEC’s development is naturally plagued by such voices.

ZEC’s Development Journey

When ZEC first launched, there were few competitors in the privacy coin space, and its use of advanced zero-knowledge proof technology attracted many KOLs in the industry. This generated high expectations from many users, and the coin was initially highly sought after, reaching a peak price of $3,000, shocking the entire cryptocurrency market. However, the price quickly fell and entered a steep decline, dropping from around $1,000 to a low of around $30, leaving many disappointed.

The core feature of ZEC itself, privacy and anonymity, does enable strong anonymity, but it is very inefficient in terms of performance.

Due to the performance limitations of the mainnet, the ZEC team did not encourage users to conduct anonymous transactions throughout the process, and very few users actually used this feature. Chain data also shows that most transactions did not use the anonymity feature, despite ZEC being hailed as a star privacy coin project at the time. This is quite ironic.

ZEC, together with XMR and Dash, is known as one of the three major privacy coins, which is a testament to its early success. However, in the following years, ZEC mostly experienced a downward trend in price and was often viewed with pessimism by users. ZEC’s rare price increase occurred after 2020, due to the favorable crypto market at the time and the scarcity caused by the halving mechanism, but it soon resumed its downward trend.

What surprised many users was the emergence of XZC, which had a certain impact on ZEC’s market position. Both coins have similar privacy and security features, but XZC has demonstrated better optimization in algorithm and contract interaction.

Although XZC was often regarded as a pyramid scheme at the time and its circulation was not as good as ZEC’s, the many similar yet different characteristics between the two coins also indirectly prove ZEC’s development decline.

The emergence of other privacy coins in the crypto market has made the competition in this field even more intense, and it has also confirmed the long-standing shortcomings of ZEC.

Conclusion

ZEC’s project funding was derived from a 10% cut from miners. However, the project inherited the BTC’s halving mechanism, which has caused a decline in revenue over time. This has made it difficult for the development team to make significant breakthroughs in technology due to financial constraints.

Based on the subsequent price and circulation of ZEC, there are some problems with the project itself. The development team needs to find ways to obtain funding, but the project is based on the premise of complete decentralization. Long-term extraction of miner rewards may hinder the decentralization of the project and also discourage user participation.

Despite the issues with ZEC’s funding and decreasing mining rewards, it is still considered a successful privacy coin within its category. ZEC has achieved a technological breakthrough in protecting user privacy, and its consensus within the market and user base remains strong. For many users who prioritize privacy and usage over investment, ZEC continues to be one of their preferred privacy coins.