A Privacy-Preserving Protocol: Explaining the Zcash Cryptocurrency 

Many traders turn to cryptocurrencies to preserve online privacy, but few crypto projects offer complete anonymity. Because most cryptocurrencies rely on transparent distributed payment ledgers, they only provide "pseudonymous" wallet addresses for traders. Networks like Bitcoin (BTC) and Ethereum (ETH) don't broadcast each user's name with every transaction, but onchain analytics firms have tools to follow these transaction trails and link real-world identities with crypto wallets. 

There are, however, a few cryptocurrencies that make privacy the primary feature of their design. Zcash (ZEC) is one such project that offers crypto traders the freedom to obscure their transaction history. 

Zcash’s history

The origins of Zcash go back to 2013, when a group of cryptographers suggested adding privacy-preserving technologies to the Bitcoin blockchain. Specifically, these developers were interested in adding a cryptographic verification system called "zero-knowledge proofs" (ZK proofs) to Bitcoin's Network, which allows computers to verify transaction data without revealing sensitive details such as the recipient's address or the amount sent. Due to the complexity and high resources involved in using ZK proofs, Bitcoin core developers rejected these proposals, but those in favor of ZK proofs continued to work on a standalone cryptocurrency project. 

Led by the American developer Zooko Wilcox-O'Hearn, a team of researchers at John Hopkins University, MIT, and Tel Aviv University created the Zcash Company (today the “Electric Coin Company”) to develop a new privacy-focused cryptocurrency they called "ZeroCash." In 2016, the Electric Coin Company launched the Zcash blockchain, and the nonprofit Zcash Foundation now coordinates fundraising and development efforts for future upgrades. 

How does Zcash work?

Think of Zcash's blockchain as Bitcoin with optional privacy features. Because Zcash is based on Bitcoin's codebase, it follows the same Proof-of-Work (PoW) consensus algorithm, in which computers (aka nodes) use computational energy to solve algebraic puzzles every few minutes to post transactions on the blockchain and receive crypto rewards. The feature distinguishing Zcash from Bitcoin is the former lets users enable a privacy-preserving "shield" when sending their crypto. 

For Zcash traders to shield their transfer data, the blockchain enables a ZK proof technology called “zero-knowledge succinct non-interactive argument of knowledge” (or zK-SNARKs) to obscure their transaction history. zk-SNARKs use advanced cryptographic hashing functions to prove the validity of a transaction between two parties without revealing specific transfer data or publishing these details on a public payment ledger. zK-SNARKs allow traders to send peer-to-peer (P2P) virtual currencies without leaving a digital trace on Zcash's blockchain.

Zcash FAQs

What is the ZEC Coin used for? 

Like Bitcoin, Zcash primarily serves as a P2P virtual currency, but it includes "shielding" features for traders concerned about online privacy. Zcash is a fungible cryptocurrency, meaning the price per Zcash coin has a 1:1 value on the crypto market. Traders view the latest Zcash price using a real-time Zcash price chart on an exchange or a crypto price aggregator like CoinGecko.

What are privacy coins? 

Privacy coins are a class of cryptocurrencies with confidential payment ledgers. Although online security advocates praise the extra encryption these cryptocurrencies offer, some governments and exchanges place special restrictions on them due to their extreme anonymity. Besides Zcash, other examples of privacy coins include Monero (XMR) and Dash (DASH).

Is it profitable to mine Zcash?

Unlike blockchains like Bitcoin, which favor expensive ASIC mining rigs, anyone with a Graphics Processing Unit (GPU) computer has the essential equipment to successfully integrate with the Zcash blockchain and participate in PoW validation. Whether it's profitable to mine Zcash depends on how much energy a miner plans to spend, the average ZEC rewards they receive, and the market price per Zcash coin.  

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