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Zcash (ZEC) is a privacy-oriented cryptocurrency employing one of the most innovative cryptographic primitives available today: zero-knowledge proofs (ZKPs). Specifically, Zcash uses an optimized form of ZKPs known as zk-SNARKs, along with shielded transactions that obfuscate transaction details across its public blockchain network, providing anonymity and fungibility. ZEC was created by and is backed by the Electric Coin Company and the Zcash Foundation, and is one of the most prominent privacy-focused cryptocurrencies available today.

Use Case

The primary use case of Zcash is very straightforward: optional financial privacy. Other cryptocurrencies – such as Bitcoin – are pseudonymous, and it is possible to deanonymize users through a variety of techniques, many of which have been published in academic circles and proven to work with high probability. Still, ZEC started with the Bitcoin source code, adding privacy-enhancing features whereby users are able to decide on the degree of confidentiality within each transaction (shielded addresses). Other cryptocurrencies emphasizing privacy – like Monero – have enhanced privacy features, but outside of the recently upgraded bulletproof implementation, do not match the fundamental anonymity guarantees of zk-SNARKs in Zcash. ZKPs enable transactions to be verified without revealing the sender, receiver, or transaction details. 

Users of Zcash can send ‘shielded transactions,’ which require more time and computation than regular transactions because of the need to construct a proof for the zk-SNARK. The zk-SNARK proof proves that all of the inputs and outputs sum to zero – meaning no Zcash was created out of thin air – and that all of the digital signatures used are valid. Alternatively, ZEC users can send transparent transactions with no privacy enhancements. This optionality allows users to share all, none, or some transaction details, depending on their preference and situation.

The term zk-SNARK stands for “zero-knowledge succinct non-interactive argument of knowledge” and is used to validate a transaction without revealing any details about the addresses of the sender and receiver or the amount being transferred. Privacy guarantees of zk-SNARKs’ level are vital for numerous reasons, including censorship resistance, generating proofs for complex interactions, and even compacting blockchains through ZKPs of block data. You can find an in-depth overview of the mathematical concepts and construction of zk-SNARKs in Zcash here. 

Starkware’s STARK technology has two primary advantages over SNARKs (used by ZKR-competitor ZkSync): 1) It doesn't require an initial trusted setup (like in zkSync v1), and 2) they’re ~10x faster to compute than SNARKs. Because the computational effort necessary to verify STARK proofs is significantly less than actually proving the computation, StarkNet can increase Ethereum scalability by orders of magnitude. 

These are the most popular and widely used non-interactive zk proofs. They're both non-interactive zero-knowledge proofs, meaning there's little interaction between the prover and verifier. Both of these proofs are much smaller in size than an average Bitcoin transaction. They both scale the Ethereum network.

Image: Comparing STARKs and SNARKs. Source: Sdyshi\Twitter

zkSNARK proof sizes are smaller. Therefore, it takes less time to verify and costs less gas. While zkSTARKS proof sizes are bigger and take more time to verify, it costs more gas than zk SNARK. zkSTARK TPS limit is higher than zkSNARK and is more scalable.

Secondary Use Case 

Zcash’s primary use case is privacy, and the secondary effect of that privacy is fungibility. Compared to other privacy-oriented cryptocurrencies, Zcash is regarded as having one of the most robust anonymity guarantees due to its use of ZKPs. The anonymous nature of ZKPs enables fungibility not available with fiat currencies or many other cryptocurrencies. Fungibility is the idea that all coins are identical and mutually substituted. 

With Bitcoin, the ability to deanonymize users through transaction mapping via network-layer attacks (i.e., IP address mapping) and other forensic techniques can lead to specific inputs and outputs being associated with illicit activities. Because of this, vendors, merchants, and governments can blacklist specific transaction outputs as “dirty money.” If some bitcoins are considered dirty money while others are not, then fungibility is reduced. 

Zcash seeks to solve these problems by allowing a user to shield particular wallets and transactions from view. If you need to handle a transaction privately, you can do so while still allowing others to verify the transaction cryptographically. 

Of course, with private transactions and near-perfect fungibility comes potential backlash from governments, law enforcement officials, and regulators. To combat this, Zcash also allows for transparent transactions on its blockchain and these transparent transactions currently consist of the vast majority (~86%) of the transactions on the network. However, the Sapling upgrade provided a much-needed reprieve from the inconvenience of using shielded transactions, by decreasing time and memory requirements by 90% and 97%, respectively. Since Sapling, shielded pools and transactions have increased (discussed in greater detail in the following sections).

Competitive Advantage 

Zcash’s competitive advantage derives directly from its use of zk-SNARKs. It is the first full implementation of the nascent privacy-preserving technology and has become one of the most popular cryptocurrency networks with a strong development team behind it. 

Other cryptocurrencies – like ZCoin – also employ ZKPs but do not have the widespread network effects as Zcash. Furthermore, Zcash’s founder – Zooko Wilcox-O’Hearn – is a high-profile figure in the industry, and the development team’s predilection for attacking complex and ambitious network upgrades and research has led to some impressive accomplishments. 

Other cryptocurrencies focusing on privacy – such as Monero – have larger open-source communities but do not have the same amount of funding nor provide the same level of anonymity guarantees as a full zk-SNARK implementation. 

ZEC privacy assurances vs other crypto assets. Source: MultiCoin Capital