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Zcash ZEC: The Privacy Coin and it's Move To Proof of Stake

By 2sats | 2sats | 27 Nov 2021

*obligatory not financial advice*



What is Zcash?

Zcash is a privacy coin like Monero or Secret Network. However, its privacy is only optional and not there by default. Zcash basically offers both transparent and shielded transactions, this makes it possible to use Zcash in a way that everyone can see it but also in way that lets you keep your privacy.

Most blockchains are public by default, which means all data of every transaction is available to everyone. This actually has its perks too, you can see what the whales are doing with their coins for example and auditing is also much easier where it’s needed. But a lack of privacy is a problem too, just imagine your friends or employers could check your crypto address and see that you spend money for a premium membership on an adult site. So ideally you could use your coins in a private and in a public way.

Like mentioned, Zcash solves this by allowing 2 different types of transactions. There are t-addresses that are transparent just like Bitcoin and there are z-addresses that are shielded. This two types of addresses are interoperable which means you can send coins from a t-address to a z-address and back again. All data of transactions between transparent addresses can be seen by everyone. Any transaction involving a shielded address encrypts the data of the z-address. A private transaction between two shielded addresses will still be mentioned on the blockchain but only that a transaction happened and how much fees were paid, the receiver and the sender and the amount being sent will be encrypted. The encrypted data can still be shared with third parties with a special viewing key that normally only the sender and receiver have, so private transactions can still be audited if wanted.

Another great feature is that you can add encrypted memos to your transactions that only the receiver can see. ZEC is one of the oldest and most popular privacy coins second only to Monero and it is the first blockchain that started to use zero knowledge tech like zk-SNARKS.




Switching from PoW to PoS

Zcash is currently using proof of work as consensus mechanism but the Electric Coin Company, the developers of Zcash, recently announced that they want to switch to proof of stake. The main reason for it is that 80% of the mining is done by ASIC miners who are immediately selling their rewards for profits. So there is a constant selling pressure that pushes the price down. A switch to PoS would solve this because it would make the miners want to keep their coins for longer because they would need them for mining.

Another advantage is that PoS blockchains are easier to integrate with other chains. Cosmos for example could easier connect to a PoS chain than to a PoW chain. Same with the Binance Smart Chain. This would make it easier to use ZEC coins on DeFi protocols. PoS is also generally faster and uses a lot less energy.

A disadvantage would be that PoS could be more centralized and the Electric Coin Company would gain more power over the network and we also don't know what else the switch could change on the blockchain or its tokenomics. However, the decision of whenever or not Zcash will really switch depends on its users and the nodes running it. If people like the idea they will accept the hard fork, if not they will just continue to mine Zcash the way it is. It is also possible that this causes a permanent fork and that there will be 2 different types of the Zcash blockchain, like with Ethereum and Ethereum Classic.



The ZEC coin and its price

ZEC was originally a fork of Bitcoin and just like BTC it has a max supply of 21 million, so there is no endless inflation to worry about. Privacy in blockchain will become increasingly more important as cryptocurrencies become more mainstream. However, privacy coins are also often attacked by regulators that are afraid that they could be used for illegal activities, Monero has been delisted by several exchanges because of that but Zcash has been delisted less often because its privacy is not the default setting. Zcash still also has many competitors, Monero is the king of privacy coins, Secret Network is a private smart contract blockchain and DASH and soon also Litecoin have privacy features. It’s hard to say if Zcash is going to stay relevant if other blockchains keep improving their privacy, but its devs are definitely working on Zcash too.

Before the entire crypto market started to dip, there was a huge pump for the Zcash price. The value of ZEC increased by 80% over the last month. This is because of the announcement that they want to switch to proof of stake. Like mentioned this will lower the selling pressure from miners which will increase the price, but this could already be priced in now and there could be a correction soon. We don't how exactly the Zcash blockchain will look like after the switch and whenever or not we get to switch depends on if the users like it.





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