WHAT IS ZCASH?
Zcash is the first open, permissionless cryptocurrency that can fully protect the privacy of transactions using zero-knowledge cryptography.
- A decentralized and open-source cryptocurrency that provides strong privacy protections.
- Shielded transactions hide the sender, recipient, and value on the blockchain
- If Bitcoin is like http for money, Zcash is https—a secure transport layer
BETTER BLOCKCHAIN TECHNOLOGY
FUNGIBLE CRYPTOCURRENCY
In order to remain equally interchangeable, units of cryptocurrency must be unlinked from their history so that one unit is as good as any other unit. Zcash brings fungibility to cryptocurrency by unlinking shielded coins from their history on the blockchain.
ENABLING NEW APPLICATIONS
Zcash is pioneering the use of zero-knowledge proofs, applying cutting-edge cryptography to blockchain technology. Zero-knowledge proofs allow fully encrypted transactions to be confirmed as valid. This new property will enable entire new classes of blockchain applications to be built.
UPHOLDING CONFIDENTIALITY
In the pre-digital currency world, both individuals and enterprises could justifibly assume that their financial transactions would be kept confidential. With Zcash, users can enjoy the advantages of using a public blockchain, while still being sure that their private information is protected.
How is Zcash more private?
The Zcash network uses modified Bitcoin software to allow users a choice whenever they transact. You can get paid at a normal address that works transparently just like a Bitcoin address (we call this a transparent address, or “t-addr”) or you can use a private payment address (we call this a shielded address, or “z-addr”). If two people transact with shielded addresses, the Zcash blockchain will not record the details of that transaction publicly. All of those details are things that otherwise would be used to identify them: things like the amount of Zcash just sent and received and the addresses of the payor or payee. With Zcash shielded addresses, all of that information is encrypted or kept secret from the public.
Of course, that raises an important question. How do the users of the Zcash network know that no new money was created in a private transaction? How do we know that the sender did not just counterfeit new Zcash instead of sending you her existing balances? In Bitcoin you know that there has been no counterfeiting because the blockchain has an indelible record of all transactions that is complete with details like amount sent, sender address, and recipient address. That blockchain record goes all the way back to the beginning of the network, and if you sum up all the transactions you will get a number of Bitcoin in circulation that is only the amount of bitcoins legitimately mined so far mined. This gives us confidence that bitcoins are only being created according to the rules of the software; no fishy counterfeiting is taking place. So how can we be sure that there is no counterfeiting in Zcash if we cannot see all of the individual transaction records on the blockchain? This is where the new Zcash technology comes in.
Zcash uses cutting edge math and science to create a privacy protecting blockchain. Specifically, it uses cryptographic functions that are called zk-SNARKs. That stands for Zero-Knowledge Succinct Non-interactive Arguments of Knowledge. It’s a mouthful (computer scientists aren’t always the best at naming things), but what it means is this: with a zk-SNARK, a computer or network of computers can take some otherwise encrypted and unreadable data and prove certain limited facts are true about that data without revealing anything else about that data. So in the case of payments made to and from a shielded Zcash address, using a zk-SNARK built into the protocol software, the network can prove to any user that, on-net, all outgoing transactions equal all incoming transactions (i.e. no new money was created), but the zk-SNARK function proves it without revealing the specifics of those individual transactions, all the data that would be used to compromise your privacy.
Can regulated institutions use Zcash?
Financial institutions are legally required to comply with anti-money laundering and anti-terrorist financing laws and regulations. Can these institutions use a payment system and currency that leaves no record of individual transactions? Absolutely! That system is called cash and just about every financial institution in the world uses it. Cash transactions are still much more opaque than any cryptocurrency transaction, even a Zcash transaction from a shielded address.
If I go into a bank and hand the teller $1,000 worth of cash, the bank would have less information about that transaction—where I got the money in the first place—than if I sent them $1,000 worth of Zcash from a shielded address. At least with Zcash they know for sure that the money isn’t counterfeit. Just as financial institutions can accept and hold your cash without running afoul of the regulations, they can accept and hold Zcash as long as they continue to keep their own internal records as they are required to do by law.
The responsibility to comply with things like the Bank Secrecy Act (a financial surveillance law in the U.S.) is a responsibility borne by the institution and not by the technology behind the medium of exchange or the developers of that technology. We don’t ask the Federal Reserve to record all cash transactions, we ask that individual banks or money services businesses keep their own records, do their own Know-Your-Customer diligence, and reports things that look suspicious.
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