*Note: a SWOT analysis is an evaluation of the fundamental, operational, technical, social, economic, and even to some degree administrative elements of a project. This is not a model to be used for trading purposes. (NFA, DYOR)
Composed of four elements, Strengths, Weaknesses, Opportunities, and Threats, a SWOT analysis framework provides excellent insight for establishing a high-level understanding of the state of a project’s well-being through the lens of a birds-eye view.
It can help formulate decisions around which areas require more attention, set performance goals, and organize a foundational understanding of where a project is headed.
Rarely (if ever) used in crypto, it is time to apply this timeless method of evaluation to the digital asset space.
💪 Strengths (Internal) (Helpful)
1. OG Status
Built on the very human fabric of trust, when it comes to blockchain technology and the greater crypto/digital asset industry, reputation is everything. Launched in the later half of 2016, Zcash qualifies as a generation one projects that has been able to stand the test of time longer than most of the market. With its resilience being proved through historic performance, Zcash can innately attract higher degrees of trust toward the operations of its network. Additionally, being an OG gave Zcash enormous attention during the younger years of the crypto industry and in turn, gave it a chance to build strong roots within the original communities of founders.
2. Expanding Privacy Sets
The core feature that gives Zcash transactions their privacy is related to the shielded transactions feature. The way that Shielded transaction works is that users deposit their Zcash into privacy sets (Sprout, Sapling, and Orchard). The larger the amount of addresses, the larger amount of commingled funds, and the more transactions that take place, the stronger the privacy is supposed to become.
3. UTXO model
There is an ongoing debate in the digital asset ecosystem regarding which transaction model is superior; Unspent Transaction Outputs (BTC) or Accounts (ETH). Being built as a fork of Bitcoin during much earlier stages of the industry positioned Zcash to adopt Bitcoin’s UTXO system. Taking the side of it being superior, having a UTXO model means that the actual transactions are much closer to cash (whereas account-based systems are more reminiscent of current banking systems). Additionally, UTXO systems provide higher capabilities around the parallel processing of transactions and a higher degree of privacy.
4. Pioneer of zk-SNARKs in Crypto
Considered the holy grail of privacy, Zero-Knowledge proofs have been, and continue to be, one of the most funded areas of interest. Zcash was years ahead of every other privacy project in its implementation of ZK cryptography into digital assets. Being the first to ever bake SNARKS into the core architecture of the blockchain Zcash secured its reputation in the privacy space. In fact, it would be fair to say that it was much of Zcash’s efforts that have guided the industry into the evolution/pursuit from pseudonymity to true anonymity.
5. Own Unique (Bitcoin) Blockchain Architecture
In a world that is constantly evolving, merging, and diverging, consistency is infinitely rare and highly appreciated. With the introduction of modularity into the crypto industry, or to be more exact, following the success of Ethereum as a smart contract platform, 99% of projects fell into the race for interoperability by trying to be EVM-compatible (or the like with Cosmos). Being born into the very early generations of the industry, Zcash is proudly standing on design principles, borrowed and adapted from Bitcoin (even down to the monetary supply and policy). This positions Zcash into a category of its own, giving it more distinguishing variables to help it stand out from the overcrowded and sometimes confusing layer 1 scene.
6. Proof-Of-Work (POW)
Another fundamental technical differentiator between Zcash and the vast majority of modernized blockchains; the POW consensus mechanism. POW is a computationally intensive mechanism that happens to be the purest form of energy conversion from electricity to money. It is more decentralized (in terms of permissibility). It is more resilient against the “rich-get-richer” flaws that accompany alternative financial models. Being Proof-Of-Work attracts a very particular set of actors that are more likely to be supporters of the utopian dream of blockchain.
7. Trusted Setup Ceremony
This is a very sensitive subject matter. Whenever the Zcash network was being instantiated, there were six groups of independent entities that had to participate in the creation/seeding of the genesis privacy points. While anything can be said about them, the efforts of all these participants and the extremes to which they went in the generation of randomness is astounding. The process began with acquiring brand new devices from stores in cash, running to obscure random hotels to rip out all radio materials (Wifi/Bluetooth), all while being recorded by neutral external parties non-stop with cameras that had no internet connectivity, not to mention that none of the six parties know each other in different parts of the world. One of the members was riding back and forth on a train in Japan to make sure their signal was difficult to intercept; another one had radioactivity while in an airplane, and thats was just the start. At the end of it all, the devices must be obliterated, smashed to bits, and burned to dust.
😞 Weaknesses (Internal) (Harmful)
1. Broken Issuance Model
Incentives are key to establishing healthy, self-sufficient ecosystems. Generally speaking, in POW models, issuance is based on a per-block basis that is allocated to the node that found the most recent block. Zcash leverages the same structure to its issuance with a minor caveat; mining rewards are not allocated exclusively to miners. The newly minted ZEC tokens are allocated according to an 80/20 split, 80% for miners, 20% for foundations (Electric Coin Capital and and the Zcash Foundation). That means that 1/5 of all the rewards that have been minted into the market have been distributed throughout entites that did not necessarily contribute to the maintenance of the network, which simultaneously implies that the miners likely feel under-compensated and won’t be too eager to return. As of 2020, the 20% reward is allocated to a Development fund that is still under the control of the foundations.
2. Proof-Of-Work (POW)
Applicable to both a weakness and a strength. Bitcoin owns this space. While Proof-Of-Work is an excellent model for security, monetary policy, and decentralization, the foundation of energy consumption (electricity leveraged to mint coins), upon which it is built, is very resource intensive and increasingly becoming more selective regarding its allocation. The raw amount of POW that Bitcoin controls will likely only continue to grow and render anything else basically incapable of competing. Zcash requiring physical machines implies that it will have to compete against Bitcoin, not just for the resources (electricity) but also for developer mindshare (creating improved machines) and manufacturer capacity (requiring supply chains for the components).
🧐 Opportunities (External) (Helpful)
1. Privacy Centric
Privacy is one of, if not the largest, areas of interest for academia, commerce, and personal users in the context of computer science. The need and desire for privacy will continue to grow in tandem with the expansion and sophistication of technology. As governments boldly inject themselves more and more into the personal lives of their civilians, privacy will become only more valuable to the population.
2. Implementation of POS
Proof-Of-Stake has become the de facto consensus mechanism for all new-generation blockchains. It is known to be much more friendly for the environment, easier to technologically bootstrap (no need for overly complex machinery), and model economically. Zcash has announced that it plans on migrating to POS (no concrete date or definitive roadmap yet) in order to improve the project’s level of decentralization and invite new participants into the fold. The exact implementation is still unclear, but as mentioned by Nate Wilcox, the founder of the Electric Coin Company, there might be a design novelty where, even in the presence of POS, there will still be a POW element. Depending on how exactly the project utilizes it, will also potentially open up new affiliations with entities related to ESG.
😳 Threats (External) (Harmful)
1. Miner Centralization
Zcash has raised concerns about the level of distribution of its mining pools. Coinbase came out with research that showed more than 51% of the Zcash hashrate belonged to a single entity (ViaBTC). The verdict here is simple and straightforward, if a single entity has a majority share/control of the network’s computational resources, then a project is basically useless because it is not resilient against being manipulated.
2. Public Abandonment
Maybe it’s a bottom signal, maybe it’s just really been a testing bear market, but the social sentiment has become one of abandonment. Zcash used to have one of the most vibrant, supportive communities, but as of this cycle, so many of them have jumped ship and decided to cut their losses. The amount of confusion around the direction of the project and the amount of competition (that is likely superior in its privacy primitives) has led to people losing their faith or interest in the project.
A withering darling.
As it is today, the project seems to be losing its importance to the industry (as measured by market capitalization); nevertheless, hope shines somewhere far away that one day, Zcash can embody the vision that it once presented to the world… very far away.
In spite of any potential negatives, the project continues to garner support from industry giants such as Coinbase and prominent individuals such as Ryan Selkis. Perhaps the solid technical foundation by a very notable, revered team of Zcash will be able to bring it back to life.
Ultimately, the vision of Zcash was to arbitrate out all other privacy coins and deliver a public ledger with private transactions. Meaning whenever a private transaction is sent, there will only be an adjustment to the state of the ledger without revealing which addresses are involved or the amount of money. Long story short, I believe that Zcash will not be able to deliver on this utopian vision. Even with the growth of the privacy sets, it seems possible to reverse engineer the state transitions that take place and map out the activity.
It cannot be ruled out that in the event of a global sentiment shift or some major breakthrough, ZEC becomes the definitive privacy asset of choice for the world; given a non-zero chance and the simultaneous size of the opportunity, perhaps ZEC is a silent buy.
Would I Invest in ZEC?
Plainly put, I have lost more money in ZEC than any other crypto so there is definitely bias here…
It seems that owning one coin is not that big a deal, maybe even a handful of them; however, I would definitely not put anything substantial into ZEC.
On a quick side note, certainly, a technical indicator such as price does not belong in a SWOT analysis; however, this SWOT would be remiss without even a mention of ZEC’s monstrosity of a chart. Being a tier 1 project (considered valuable and valid by the broader industry, never falling out of the top 100), ZEC is easily one of the greatest disappointments in terms of its performance.
If you know something that I don’t or feel as though I might have missed anything worth noting, please do share, I would tremendously appreciate some feedback.
Thank you so much for reading,
I hope this serves you well on your journey.
Live long and prosper 🥂