Throwing cold water on Zcash - With Deep Black, does the market really need Pure Black?

1. The surprising Zcash
Recently, Zcash, which claims to be the ultimate anonymity, has become extremely popular. It is so popular that even before mining has started, the futures price on Bitmex has reached 1.9 BTC. It should be noted that Zcash has a total supply of 21 million, the same as BTC, which means that some people believe that the total market value of Zcash can be higher than that of BTC.

This has never happened before. You should know that in the total market value ranking on coinmarketcap.com, even the powerful Ethereum has a total market value of only 8.8% of Bitcoin. The total market value of Dash (formerly Darkcoin) and Monero, which focus on anonymity, is only a fraction of Bitcoin.

Although considering that the total amount of Zcash coins is small in the early stage, it is possible that a higher price will appear under the pursuit of speculative funds, but the Zcash futures contract on Bitmex expires on December 30, and two months is enough for miners to mine enough coins. Zcash production is the same as that of BTC in the early stage (7200 coins/day). If the price of Zcash is above 1BTC, it means that the funds for Zcash to receive coins from miners must be 4 times that of Bitcoin (1800 coins/day) . This is a grand occasion that I have never seen since I started mining altcoins.

2. The Development of Anonymity
Anonymity has always been the goal pursued by anarchists and hackers. Although Bitcoin also has anonymity, this anonymity is based on account anonymity. Through the public blockchain transaction information, the flow of funds can still be tracked. To hide the flow of Bitcoin funds, various means must be used to mix coins.

Dash and Monero have made further improvements on the anonymity of Bitcoin. Dash encourages users to run master nodes through economic means (users who run master nodes will receive half of the miners' mining output). Each master node has a buffer fund of 1,000 Dash coins, and any Dash transaction will be mixed through the master node.

Monero takes a different approach, improving the transaction structure by using ring signatures to achieve anonymity. If 10 people send a transaction, only one person’s signature is actually signed on the transaction. And because only one signature is used, basically no one knows whose signature it is.

Zcash uses zero-knowledge proof technology, which makes Zcash absolutely anonymous. Through zero-knowledge proof, Zcash completely hides transaction records and amounts. It can be simply considered that all coins (non-transparent transactions) are taken from a large mixed coin pool , thus achieving Zcash's interchangeability (there is no difference between any two sums of money).

3. Does absolute anonymity make sense for the market?
If Bitcoin is considered to have 95% anonymity, then Dash and Monero have raised their anonymity to 99%, while Zcash has raised it to 100%. The technical community is therefore very excited about this, believing that a breakthrough from 0 to 1 has been achieved. But will the market be equally excited?

People will always unconsciously exaggerate things that are related to themselves. Suppose in a certain company, development and marketing each account for half of the credit, but if you ask the developer, what will he say?

Development contributes at least 70% to the company. Without us developing awesome products, the market is useless.

And what about the marketing staff?

Development contributes at least 70% to the company. Without the orders we worked so hard to get, development would be useless.

The same is true for the anonymity of Zcash. From a technical perspective, zero-knowledge proof is indeed a sophisticated and beautiful technical means, which makes the technical community pursue it. But is there really a rigid demand for such absolute anonymity in the market? For the market, is there really a difference between deep black and pure black?

Other coins with deeper anonymity have only a slight advantage over Bitcoin, and they are insignificant. For the market, Bitcoin already has sufficient anonymity . It is almost unheard of that anyone can recover stolen or extorted Bitcoins, and there has been no follow-up to the dozens of thefts from exchanges. For the underground market, although Bitcoin is not absolutely anonymous, this anonymity is sufficient. Simply charging the coins to websites such as LocalBitcoins.com that do not require identity verification and then withdrawing them is enough to cut off most of the tracking methods. If you still feel that it is not enough, then use a dark web mixer. After n rounds of mixing, the probability of tracking is very small.

However, other more anonymous coins have a huge and irreparable disadvantage to Bitcoin . Bitcoin is the absolute hard currency of the Internet and darknet market, with a relatively stable market value (compared to other coins), deep market depth, and wide acceptance. This is the huge first-mover advantage that Bitcoin has accumulated after 7 years of development and hard work. Hackers are definitely willing to accept Bitcoin, even if they have tens of thousands of coins stored there for a few years to avoid the limelight. But how many hackers are willing to accept Dash and Monero and store them there for a few years?

Therefore, Dash and Monero have almost no users who actually need anonymity, and only have speculative value. The total market value of Dash and Monero is only a fraction of Bitcoin (0.7% and 0.6%). Zcash has made a seemingly huge (from 0 to 1) but actually weak (from 99% to 100%) improvement in anonymity, but it has not solved the huge disadvantages of Dash and Monero over Bitcoin. The current market's pursuit of Zcash is a huge bubble.

Although specific predictions are easy to be slapped in the face, although the current price of Zcash on Poloniex.com is as high as 2000 BTC

But I am still interested in being a charlatan. Of course, I never make short-term predictions. It is possible that short-term prices will be driven to any price by speculative funds. I only make long-term predictions:
1. Zcash price will be lower than 0.3 BTC (total market value is 2.5% of BTC) in 6 months, with a median probability of 0.15 BTC.
2. Zcash price will be lower than 0.1 BTC (total market value is 1.5% of BTC) in 12 months, with a median probability of 0.05 BTC.

4. Technical Risks of Zcash
Zcash's complete anonymity is not without cost. Just like eth claims to have achieved Turing completeness and has more powerful functions than BTC, but the cost is that after the system complexity increases, bugs become completely uncontrollable. Since the theft of DAO, eth has experienced a large number of attacks and node crashes, and was forced to perform three hard forks, which is an unimaginable joke for BTC. Anything you take from the supermarket shelf will eventually be paid for, and many people cannot really understand this.

Due to complete anonymity, the total amount of Zcash coins is unobservable, so once a coin flush occurs, all Zcash holders will be wiped out. Since Zcash holders want to enjoy complete anonymity, they must bear the corresponding price.

1. Human-caused : Zcash relies on an initial parameter set. If the person who constructs this initial parameter set is malicious, he can generate money at will without being discovered. Zcash has made a design improvement for this. Assuming that there are N people involved in constructing the initial parameter set, as long as one person is trustworthy, the parameter set generated is trustworthy. Of course, no one can guarantee that a developer of Zcash has not left hidden loopholes in complex encryption methods and algorithms - an overly complex system will make others lose the ability to supervise developers. The DAO loophole is likely to be caused by an insider of the eth development team. This is also the reason why many people oppose Core's soft fork isolation verification + further superposition of the lightning network.

2. System vulnerabilities : Any code may have bugs. Even Bitcoin, whose code is not complicated, has been swiped out 184.4 billion times due to integer overflow vulnerabilities. "Shocking: 184.4 billion Bitcoins have been swiped out". Bitcoin swiping can be quickly discovered and rolled back (invalidated) because Bitcoin block transactions are publicly available. If Zcash also has a similar vulnerability, all Zcash holders will become fat pigs under the knife of hackers, and even be cut for a long time and bleed to death without knowing it.

The Zcash drama is about to begin. Will it become a farce like the much-hyped DAO? We might as well wait and see :)

Expansion & Bull Market Series:

"【Basic Science】Can Bitcoin support all human transactions?"
"Also Talking About 4,000 Yuan Is the Beginning of Bitcoin Bull Market"
[Completely end the debate between soft and hard forks] A safe hard fork is a soft fork expansion
On the Correct Approach to Bitcoin Upgrading (and Refuting ahr999's "Consensus Rules")