What does Zcash mean for Ethereum?

At ConsenSys, many believe that Ethereum community members should be excited about the launch of the Zcash project because the collaboration between the two parties will bring the two blockchains closer and achieve our goals.

What is Zcash?

Zcash is a new cryptocurrency that was officially launched on October 28, 2016. The Zcash project forked the code base of bitcoin core 0.11, but the biggest difference between it and Bitcoin and Ethereum is that it adds a completely anonymous transaction function. Therefore, Zcash is known as "untraceable".

To allow private transactions, Zcash uses a cryptographic technique called zero-knowledge proofs, which even the brightest mathematicians describe as “moon math” and are only fully understood by a handful of researchers around the world who specialize in the technique.

What is Zero-Knowledge Proof?

In simple terms, with zero-knowledge proofs, you can prove to someone that you have done a calculation without having to ask them to recalculate it. The effect is that you can prove that a statement is true without revealing any other information.

Zero-knowledge proofs make Zcash tokens untraceable by creating private transactions on the public Zcash blockchain. Zcash transactions can hide the addresses of the sender and receiver, as well as the value of the transaction, making Zcash completely anonymous. In the current market, other blockchains will display the specific information of the transaction, including the sender address, the receiver address, and the transaction value. The only thing Zcash discloses is that "certain transactions" occurred at a specific point in time.

The addresses that send zcash are anonymous, which means that if you don’t know their real identity or real address, you have no idea where the zcash transaction is going.

For example, suppose you have 100 wallets, each containing 1 Bitcoin, and their information is recorded on the blockchain. Now, suppose 5 of these people use zero-knowledge proofs to protect their Bitcoins. Then 95 of them will be transparent and the remaining 5 will be shielded. The blockchain and the network will track the number of shielded Bitcoins, but not where they go.

Who needs financial privacy?

In fact, there are many legitimate use cases for financial privacy. Financial privacy is probably desirable for most transactions that take place in the world.

For example:

1. A company wants to protect its supply chain information from its competitors.

2. A person does not want it known that she has hired a bankruptcy lawyer or a divorce lawyer.

3. A family who does not want insurance companies or employers to know that their child has a genetic problem because they are afraid of being discriminated against.

4. A wealthy person who doesn't want criminals to see their activities and avoid being blackmailed.

5. Banks, hedge funds, and other types of financial institutions that trade financial instruments (e.g., securities, bonds, derivatives) can be disadvantaged if an outside party is able to figure out their positions or choices.

How does Zcash solve the blockchain size problem?

Size is a scarce resource in public blockchains, if you have a transaction that takes up 0.5MB of block space, then the size of the blockchain will increase by 0.5MB. That is, after 2,000 transactions (about 2 hours), the size of the blockchain will increase by 1 GB. As the size of the blockchain grows rapidly, it will quickly become an unstable system.

Importantly, the zcash team was able to optimize these private transactions down to 20 to 30 KB. With this reduction in data size, the cryptographically shielded computation dropped from 5-6 minutes to just 1 minute.

What makes the Zcash launch unique?

The launch of zcash is very different from the launch of Ethereum. Ethereum's initial distribution was through ICO, and its initial token sale price was 1 bitcoin to 2,000 ether. Ethereum's first superblock gave investors a total of 60 million ether, and another 12 million ether was allocated to the Ethereum Foundation and early contributors. After distributing these 72 million ethers, Ethereum started the POW mining mode and maintained a relatively reduced growth rate. Miners can generate about 30,000 ethers per day.

Zcash, on the other hand, relies entirely on mining to generate new coins. In the first 24 hours, about 100 Zcash tokens (ZEC) were mined. In the first month, the number of new coins added each day was between 0 and 7,200, and then maintained at 7,200 coins per day. In the first four years, the Zcash team and its investors will extract 20% of the miners' income, a total of 2.1 million coins, accounting for 10% of the total 21 million.

Why is the price of Zcash so high?

In simple terms, because Zcash had only a very small supply at the beginning of its launch, coupled with the hot market speculation, the price of the coin was hyped up in the early stage. In the early days of its launch, it was even hyped up to 3000+BTC per coin. Later, due to the rapid increase in supply, the price of Zcash began to fall freely. The extremely high inflation caused its price to be extremely unstable. When there was only one Zcash on the market, its price hovered around 500,000 US dollars, and then it kept falling, and has now fallen to 740 US dollars.

One month after the launch, there will be a total of 210,000 Zcash in the market, and another 210,000 in the second month. After four months, the total amount of Zcash in the market will increase from 420,000 to 840,000.

So what does Zcash mean for Ethereum?

There are currently two ways for Ethereum developers to use Zcash's functionality. The simplest integration is to use a BTCRelay Simplified Payment Verification (SPV) system called ZRelay . This allows Ethereum DApps to take advantage of Zcash's privacy. A more powerful, but also more complex, way is to use zkSNARKs as a native feature of Ethereum. This will allow Ethereum itself to perform anonymous transactions, and work in this direction is currently underway.

Today, Ethereum developers are able to build experimental and functional prototypes, however, fully functional applications using Zcash on the Ethereum mainnet are not currently possible because the network's gas limit is lower than the proof of work computation requirements. In order to enable Zcash to be used on the Ethereum platform, a new precompiler (similar to new opcodes) would need to be added so that all expensive computations are performed in a highly optimized way rather than through the general EVM.

We hope that in the next version of Ethereum, we will be able to implement atomic swaps between Ether and Zcash, and in the future apply zero-knowledge proofs directly to Ethereum projects, making this privacy feature accessible to all kinds of smart contracts.

Zooko Wilcox, founder and CEO of zcash, once said that Zcash is not so much about whether it makes money, but more importantly, its technology exists, it can be used and tested. When zcash solves the core of the privacy problem, the Ethereum community will benefit from cooperation.