Zcash Halving: All You Need To Know

What is Zcash Halving?

Zcash halving is an event that occurs once every three to four years to slash block rewards from Zcash mining. The Zcash blockchain network has a native coin (ZEC). ZEC coins are created through mining. ZEC miners aid the coin’s creation, and miners are rewarded with transaction fees for each block successfully mined.

When Zcash was launched in 2016, miners received a block subsidy of 12.5 ZEC. However, it was slashed to 6.25 ZEC during the Blossom network upgrade that shortened block time on the network from 150 to 75 sec per block. After the first halving event to occur on the Zcash Blockchain, block rewards were further reduced to 3.125 ZEC, which is also the current block subsidy on the Network.

Why Halving?

The job of halving is to slash the amount of freshly minted tokens into two to reduce the amount of ZEC coins in circulation. Some proof-of-work networks use halving to control the supply of tokens and boost price performance.

Halving typically occurs every four years, and not only does it help to control supply, but at the same time, it combats inflation. Inflation can drastically reduce the value of a cryptocurrency and harm the network.

When there is an excessive supply of a token, it gradually loses value. For a product to be highly coveted, it needs to have a healthy amount of scarcity, which will, in turn, drive up its price. It is the same for cryptocurrencies: once a token is too surplus, even exceeding the level of demand, its value starts to drop gradually.

However, some experts in the crypto industry have argued that halving has nothing to do with price. Nevertheless, some price prediction experts who are highly skilled in the industry base their forecasts on halving events and other deep technical analyses on past price data of a token.

Zcash History

Zcash is a cryptocurrency that uses cryptographic systems to solve the privacy issue in financial transactions on the blockchain. It shared the same codes with Bitcoin and was developed in 2016 by Zooko Wilcox O-Hearn, an American-based cypherpunk and security specialist, who founded Electric Coin Company, the platform championing the development of Zcash.

The journey started in 2013 when some scientists decided to create zero coins, a proposed solution to privacy, one of the pressing problems of blockchain and Bitcoin. It was supposed to be an extension to Bitcoin, but for some reason, they decided to go solo by creating a standalone blockchain, and on October 28, 2016, Zcash came to life under the Electric Coin Company.

A year later, in 2017, the Zcash Foundation was formed, and in 2020 Zcash major grant organization was launched to assist community projects and developers with funds. Late in 2020, a major change in the token’s distribution was implemented. The founder’s reward from mined ZEC tokens was discontinued and replaced with the Zcash developers’ fund poll.

The Expiration of Founder’s Reward

Zcash initially implemented a reward allocation plan to fund the network’s development. They allocated 80% of mining rewards to miners, while the remaining 20% went to the Electric Coin Company founders and investors.

The Zcash community criticized this plan, as the structure did not sit well with many. The Founders Reward, however, was designed to expire in November 2020. Thus, November 2020 birthed a new era of scarcity and mining reward distribution for ZEC tokens. The discontinuation of the founder’s reward also led to the inception of a new dev fund structure.

The Zcash Development Fund

The Zcash community unanimously voted to support a new dev fund structure, with 80% of mining rewards still belonging to miners and the remaining 20% constituting development funds. Hence, the previous 20% allocated to ECC founders and investors was now split into smaller proportions to accommodate grant participants. Notably, grant participants got the largest chunk of mining rewards distribution from the 20%. The new reward structure is as follows:

• Zcash Foundation: 5%
• ECC: 7%
• Grants: 8%

The ecosystem’s decision to allocate the largest portion of the nonminor’s reward to grant participants was to attract more third-party developers to the Zcash ecosystem. This, in turn, increased the protocol’s decentralization.

Differences Between Zcash And Bitcoin Halving

Zcash and Bitcoin have a lot in common because they initially share the same code and have the same amount of capped token supply. However, Bitcoin has been around far longer than Zcash, and in terms of market capitalization and dominance

Nevertheless, Zcash’s block time of 75 seconds beats Bitcoin’s 10 minutes per block, making it more scalable and faster in executing transactions. All this makes their halving event create more impact on the market in different ways. Let’s talk about a few of them.

Impacts On The Crypto Market

Halving is an event carefully studied and anticipated in the industry because it has the potential not only to increase a token’s price, but it can also have a significant effect on the whole crypto market depending on its dominance level.

Bitcoin dominates the crypto market by about 50%. Zcash, on the other hand, dominates 0.04%. Therefore if ZEC’s price is to increase dramatically, it won’t make as much difference in the crypto industry as Bitcoin because of its market dominance.

Potential For Growth

While both tokens experience massive bullish cycles during, before, or after halving, there is much room for growth and development in their price movements. However, Zcash has only gone through one halving event, while Bitcoin has already undergone three halving events, with another scheduled for 2024. Zcash has greater room for exponential growth than Bitcoin because it has more halving events than Bitcoin.

Effects Of Halving On Zcash’s (ZEC) Price

While some experts believe that the halving event has nothing to do with price action, others are optimistic that the halving will be a time for a massive bullish trend on the coin. The first Zcash halving occurred on the 18th of November, 2020. A few months before the halving, ZEC’s price ranged between $50 and $90. On the halving day, ZEC traded around the $62 mark.

Interestingly, ZEC soared nearly 40% a week after the halving, making massive profits for spot and futures bulls. Following that, ZEC’s price did not see any massive surge until the next two months. On the 18th of January 2021, ZEC was valued above $100. Then, a month later, on the 18th of February, ZEC was worth $171.

ZEC’s price action before and after halving | Source: Coinmarketcap

From the time of the first halving till February 18th, 2021, ZEC had gone up by a whopping 175% in just three months. A significant bullish movement to the upside followed the first Zcash halving.

However, it is worth noting that the general cryptocurrency market was bullish then. While the market sentiment at the time may have played a part in pushing ZEC’s price up, the fact remains that a significant price increase accompanied Zcash’s halving.

Effects Of Halving On Miners

Miners, the party directly benefiting from the block subsidy, are affected because halving slashes their reward in half. They often have to find ways to cut costs because of the high computational power needed to validate transactions.

But most miners often resort to increasing their hash power, possibly because they are optimistic that halving can drive up the price of the token, and even though their reward has been reduced to half of what it used to be, it will have more value, or they just want to validate more transactions to increase rewards.

Effects Of Halving On Network Security

Halving does not affect network security, if anything, it strengthens it by controlling inflation by minimizing the quantities of tokens in circulation. Further, no transaction is affected, delayed, or stopped during or after the halving event.

The First Zcash Halving Event

Since its introduction in 2016, the blockchain protocol has only undergone one halving event, which reduced the block subsidy from 6.25 to 3.125 in November 2020, coinciding with the fifth major upgrade on the platform - the Canopy upgrade.

Although ZEC’s price surged impressively after the first halving, it failed to trade close to its peak of $720 attained during the 2017/18 crypto bubble.

The Next Zcash Halving Event

The next Zcash Halving event is scheduled for sometime in the last quarter of 2023. In the meantime, the specific date for the next halving is still uncertain. In anticipation of this, there are crypto experts, enthusiasts, and observers who are carefully watching to see how it will affect the price performance of the token and how it will affect the crypto market.

Some investors may have already started “hodling” ZEC coins and buying large quantities to create more profit opportunities. Like the past halving event, ZEC’s price could surge impressively after the second halving.

Notably, the overall market sentiment during the halving would also play a part in determining ZEC’s price action. Specific news and developments around the Zcash ecosystem could also impact price. There is no perfect way to predict the price’s direction after halving.

Conclusion

Zcash Halving is an event eagerly anticipated by the crypto community because it has significance for investors and miners. As we have discussed, halving reduces inflation by cutting block subsidies earned by miners to secure the network through validating transactions. Reducing the token in circulation will create scarcity, which could trigger a price increase.

The next Zcash halving is anticipated to occur before the end of the year. There have been various date predictions for the second Zcash halving, but most of these are inaccurate. However, as we draw closer to the end of the year, investors would be more confident of the expected halving date.