In 2009, Bitcoin revolutionized the legacy payments industry as it offered merchants an extremely low-cost and virtually frictionless payments system. However, this pioneer is far from being perfect. For starters, it can’t handle large amounts of transactions in a short span of time. With this scalability issue came the high transaction fee making it difficult for merchants and individuals to embrace it with open arms.
Noticing these problems with Bitcoin, in 2014, a group of scientists namely Eli Ben-Sasson, Ian Miers Alessandro Chiesa, Eran Tromer, Christina Garman, Matthew Green, and Madars Virza began working on the original Bitcoin codebase to create a cryptocurrency similar to Bitcoin but with additional features. In 2015, they created the Zerocoin Electric Coin Company with the cryptocurrency Zerocash. In 2016, however, they rebranded the company to Electric Coin Company and the token to Zcash. But, how does Zcash work, and should you invest in Zcash? Let’s find out.
Connecting your Zcash Address to ZenLedger For Your Crypto Tax Forms
- To import your Zcash transactions into ZenLedger for your crypto tax forms, all we need is your public address.
- Select the proper blockchain or wallet from the dropdown list.
- Paste your address into the address field in ZenLedger.
- Select if the wallet is based in the USA or not.
- Then hit the ADD COIN button
How Does Zcash Work?
The founders of Zcash developed a fork of the Bitcoin blockchain with improved user security and anonymity. They did it with the zk-SNARK security protocol, which is a novel form of zero-knowledge cryptography and ensures that the parties involved in a transaction are verified without disclosing any of their information to each other or the network.
zk-SNARK stands for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.” With this security protocol, one can prove the ownership of certain information without disclosing the information such as a secret key between the prover and verifier. For instance, given the hash of a random number, the prover can prove that such a value exists without revealing what it is.
Furthermore, zk-Snark’s fully shielded transactions encrypt information of the sender, recipient and even shield the amount. With Zcash, transactions are efficient, safe with low fees. The privacy-protecting digital currency makes sure that the transactions stay classified while allowing parties involved in a transaction to exclusively share transaction information and address for regulatory compliance or auditing.
How do Zcash Transactions work?
Zcash addresses are either transparent or private. Transparent t-addresses start with a “t” and private z-addresses start with a “z.” There are four types of transactions between these two address types.
A Z-to-Z transaction is visible on the public blockchain for everybody to see that the transaction occurred and the fees were paid. However, the transaction amount, addresses, and the memo field are not visible to the public as they are encrypted. This encryption is achievable due to the zero-knowledge proofs. If the owner chooses to reveal the z-address and the transaction details for compliance or auditory needs, he can do so via payment disclosure and use of view keys.
On the other hand, a T-to-T transaction functions just like a Bitcoin transaction. All the parties involved in the transaction are publicly visible along with the amount. Today, the majority of wallets use the t-address but they are moving toward the shielded addresses.
The t-address and the z-address are interoperable and funds can be transferred among them. However, users should understand the consequences of shielding and de-shielding information on their privacy.
How Is ZCash Different from Bitcoin?
The Bitcoin community claims that the transactions on the blockchain are transparent but at the same time they are anonymous. However, anyone who has a stake in the transaction or someone really interested could track the parties.
Zcash encrypts the transaction information so that it can’t be tracked. The Zcash blockchain is encrypted but the zk-SNARK protocol adds an extra layer of security and anonymity. Bitcoin uses the SHA-256 hashing algorithm, while Zcash uses Equihash. Zcash has larger blocks compared to Bitcoin meaning their transactions are faster.
How to Mine ZCash?
Zcash uses the proof-of-work mining algorithm, which makes miners compete with each other to solve a hash and create new blocks. The first miner to add a block gets a reward in the form of Zcash tokens. Miners can use an application-specific integrated circuit (ASIC) miner or a computer with a capable graphics card. Zcash supports operating systems such as Debian/Ubuntu, Docker, Mac, and other Linux-based operating systems. However, Zcash recommends using an ASIC miner and a mining pool for optimal mining results.
How to buy ZCash?
Zcash can be bought with three simple steps. Here they are:
Step 1: Open an online account
To invest in Zcash, you’ll need a crypto exchange account such as Gemini, Binance, Kraken, or more. Keep in mind that these exchanges can charge different fees and have different security policies. Nonetheless, provide your full legal name, address, email ID, age, and Social Security Number to open an online crypto exchange account.
Step 2: Buy or Download a Wallet
Storing your tokens safely is important as in case of a hack, you could lose all your coins. Therefore, you need crypto wallets that help you securely store your digital currency. You can choose from mobile, desktop, web, paper, or hardware wallets. However, for Zcash it is highly recommended that you use a wallet that supports shielded-address. Additionally, hardware wallets are advisable as they store your valuable tokens in a physical device that is not connected to the internet.
Step 3: Make your Purchase
Once your online account and wallet are all set up, you can add sufficient funds to your account, search for the Zcash token and make your purchase. After buying Zcash tokens successfully, you can store them in your chosen wallet.
Even though Zcash is a Bitcoin fork, it offers better transaction security and anonymity with its zk-Snark security protocol. And compared to other cryptocurrencies, it seeks to enhance the anonymity even further for its users and their transactions. With transaction fees lower than most cryptocurrencies and verification time faster, it can become a leading cryptocurrency in the future.