A Guide to Zcash
Bitcoin’s success has opened the doors in front of other platforms. Today, a lot of cryptocurrencies are based on Bitcoin’s protocol, including Zcash. But some cryptocurrencies went further to increase the privacy of transactions. Zcash, for instance, offers different types of addresses to host more than one type of transaction.
Zcash is similar to Bitcoin in structure, but with added features like privacy and fungibility. The first blockchains were susceptible to privacy invasions, for example, it was rather easy to trace transactions, so there was no anonymity.
Zcash allows users to control the level of privacy. At the same time, the platform also offers tools for audit and money laundering prevention. Even though cryptocurrency isn’t as regulated as other centralized platforms, crypto is still subject to taxes. So, Zcash offers privacy and at the same time transparency.
Study the article to learn more about Zcash, how it works. You can also learn what peculiar features of Zcash make the platform more private and secure.
What is Zcash?
Zcash is a cryptocurrency. The digital coin and its trading symbol of Zcash are ZEC. The platform was launched thanks to Bitcoin’s blockchain. Zcash developers used the original open-source Bitcoin code to build Zcash, meaning, it has similarities with Bitcoin. However, Zcash is not a copy of Bitcoin, it has distinctive features and offers more privacy to Zcash users.
One of the characteristic features of Zcash is the ability to host shielded transactions thanks to different addresses. Zcash has private and transparent addresses, and shielded transactions are possible from transparent to private addresses.
Because of this peculiar feature, Zcash is considered to be one of the most private and secure networks for hosting transactions. If you need a more private type of transaction, you can choose from 4 types available.
How does Zcash Work?
Even though Zcash offers more privacy, it still works just like most other cryptocurrencies. The platform is built thanks to Bitcoin, so it’s a proof of work type of blockchain. All available types of transactions are verified by nodes through the mining process.
To add a block to the chain, Zcash uses a network of computers. This network operates thanks to the Equihash algorithm. This algorithm is different from other protocols used by blockchains. It calculates how much RAM a node uses to secure the blockchain while adding a block with a transaction.
As you already know, the mining process is extremely competitive. To add a block, you need a lot of hash power. Powerful computers or mining pools hold the most power and are prioritized within the proof of stake algorithms. Meaning, users with GPU or CPU may not get as many chances to add blocks and receive rewards.
Zcash uses Equihash to fix this issue. Instead of prioritizing powerful computers, Equihash gives smaller nodes a chance to add solve algorithms and get rewards.
Zcash Special Features
Most blockchains and cryptocurrencies have similar features and peculiarities, but some have unique characteristics. Zcash is one such cryptocurrency. Below you can study some of the unique features of ZEC.
Zcash has two different types of addresses:
- private address;
- transparent address.
Differentiating between two addresses is an easy task as private addresses start from the letter “z”, and transparent addresses start from the letter “t”. Both addresses are compatible with each other, meaning, you can send from z to t, and vice versa. More about transactions are below.
Types of Transactions
Zcash has different addresses so that users can trade coins on exchanges. Because of this peculiarity, Zcash has different types of transactions:
- Public transactions. This type of transaction occurs between two transparent addresses.
- Shielding transactions. Occurs when one address is private and the other is transparent. The important detail here is that funds are transferred from transparent to a private address, that’s why the transaction is shielded.
- Deshielding transactions. This type also occurs between transparent and private addresses, but unlike in the former example, funds are transferred from private to transparent addresses.
- Private transactions. Occurs between two private addresses.
The first type of transaction is the most common one. Crypto wallets support transparent transactions, but not all of them have upgraded their software to support private ones and all the derivatives.
You are probably aware of such concepts as private and public keys. But Zcash offers another type of key — view key. It’s a type of key that allows viewing access to the account.
It’s like the “read-only” option in Google Documents, the person with such access can’t do anything but view. The view key was added for such purposes as audit, money laundering prevention, and taxing.
Other peculiarities of Zcash are:
- transaction expiration to reduce clogging of the blockchain;
- multi-signature transactions, but only by utilizing z-addresses;
- message encryption;
- low fees and fast transactions.
Pros and Cons of ZEC
Any type of blockchain or cryptocurrency has its advantages and disadvantages. Zcash is not an exception. The benefits of ZEC are as follows:
- The low rate of transaction.
- Security and privacy of users due to different types of transactions.
- The anonymity of users’ data thanks to the zk-SNARK technology.
- Availability of multi-signature transactions.
- The expiration of transactions reduces clogs within the blockchain and makes transactions faster.
- The ability to disclose data to third parties without risking losing cryptocurrency.
ZEC also has the main disadvantage:
- Can be used by criminals to have illegal transactions.
That’s the major drawback of Zcash. However, even considering this potential threat, the platform offers a lot of opportunities to businesses and those people who want to keep their financial transactions private.
For example, buying certain drugs for medical conditions without risking losing your job. Companies can secure their trade information, or protect themselves from other threats.
Since Zcash is a proof of work type of blockchain, there are three main methods to mine ZEC:
- buying equipment or using CPU/GPU for solo mining;
- joining a mining pool;
- participating in cloud mining.
Because Zcash uses Equihash, users can utilize GPUs or CPUs on their computers. The Equihash algorithm enables fair competition even if you don’t use mining rigs with a lot of hash power.
If you aren’t into mining solo or within a pool, you can use cloud services. It’s almost like buying cryptocurrency, but instead, you pay someone who will mine for you. Meaning, you don’t have to buy equipment or mine on your own.