In the world of cryptocurrency investing, there are a few Goliaths like Bitcoin and Ethereum, and then there are numerous other cryptocurrencies that fill their own respective niches. One of those cryptocurrencies is Zcash.
Many of the most basic investors in cryptocurrency believe Bitcoin is anonymous. What they don’t realize is that the transactions can be traced back to certain parties by using simple software. Anonymity only exists on the surface level, but with any meaningful level of digging, it disappears.
So, in many ways, the creation of Zcash is a direct result of some weaknesses that exist in the design of Bitcoin. There are many similarities between Bitcoin and Zcash. They both will have a maximum of 21 million coins and run based on the proof-of-work theorems. The current market capitalization of Zcash is over $2 billion with the
ZEC to USD rate of $790, but we have seen how fast that can change, as it did with Bitcoin in the last few months.
Why is Zcash worth investors’ attention?
Steady growth
Since its conception in 2016, Zcash has undergone a steady increase in its price. The price trend has generally mirrored Bitcoin’s upward trend and now is hovering between 2% and 4% of the price of Bitcoin.
Recently,
Greyscale Investments has established an investment trust that solely tracks the price of Zcash. After having done something similar with Bitcoin and Ethereum, it is a good sign for the predicted future of Zcash that the investment firm has devoted so much effort to it.
Privacy and anonymity
In many ways, this is a bet on the value of privacy and anonymity. The more we see stories about Twitter, Facebook, or Google violating our privacy, the more we must consider the trade-offs of using certain systems. Zcash aims to solve these problems by using their proprietary technology that is
referred to as “zk-SNARKs”. The technology uses a ton of computational power to make it possible for transactions to be verified without revealing too much information about who you are, who you are sending your money to, and how much you are sending.
The zk-SNARK technology is what gives Zcash its competitive advantage. The ability of a user to perform completely private transactions is why you would invest in Zcash, but there is still the option for a public transaction. These public transactions receive some criticism because certain coins can become ‘tainted’ by being involved in something illegal or traded by someone questionable. For this reason, it is possible that all transactions will eventually go private once the developers figure out how to reduce the computational power per transaction.
Future developments
2018 is planned to be a major year for Zcash
upgrading and streamlining its protocols. The two major factors they are going to focus on are improved security and anonymity since that is the major competitive advantage of Zcash.
The Overwinter protocol is centered around safeguarding all the future updates that will occur on the network. The idea is that the Zcash ecosystem will be better run even in the case that the government begins to intervene.
The Sapling protocol will focus on building the capability of the cryptocurrency’s privacy-oriented shielded transactions. The goal is to make sure less time and memory will be used for the shielded transactions as well as making it possible to support mobile wallets.
Criticism around Zcash
Although Zcash has been doing well so far, there are several criticisms that make some investors uneasy about putting money into it.
“Slow start” aspect
Some experts worry about the “slow start” aspect of the currency. This mechanism prevents too much of the cryptocurrency from being released at a time, which results in a limited supply. The goal is to create momentum in the price of Zcash in order to attract more users to the system, but by taking the organic discovery aspect out of play, it could be argued the price will get artificially high and then require a market correction.
People may be rightfully worried about this being a possibility as there have been similar cases in the past. The difference with this one is there are very legitimate investors working behind the protocol. Some of the most influential blockchain experts, contributing to Zcash's development, include Vitalik Buterin, Barry Silbert, Gavin Andresen, Roger Ver, Arthur Breitman, and Fred Ehrsam, to name a few.
Mining concept
This brings us to another major criticism:
the founders’ reward. Investors, employees, founders and advisors are all entitled to 10% of the cryptocurrency mined in the first four years of mining. It is argued that these people need to be compensated somehow, but this puts a bad taste in many investors’ mouths as they feel like the founders’ reward is capturing too much value.
The mining community is meant to be rewarded for the work they do, and by having 10% of their profits “taxed” in a sense, it reduces the incentive to continue mining coins. This may harm Zcash ecosystem just as it is trying to gain momentum and hit some sort of critical mass like Bitcoin and Ethereum have.
Conclusion
If you do believe in the value of anonymity and privacy in a digital sense, Zcash is one of the top contenders for leadership in this space. The biggest competitor it has is Monero, which uses a different type of crypto-backing to secure the system, and then there’s Zclassic, which is a spinoff of Zcash.
As we see major investors put money into these currencies, the best way to approach it may be a blanket investment into the trends you believe in. This lets you participate in the upside while the ecosystem determines which is the best of the various options for solving the privacy issue in the financial system.