A clueless Bill Gates recently said that “The main feature of cryptocurrencies is their anonymity.” In reality most cryptocurrencies are not very anonymous at all. Even most of the so-called privacy coins aren’t very private. While cryptocurrencies with a public blockchain, like Bitcoin, can be made somewhat more private by using services like Bitcoin mixers, also known as tumblers, they are still far from anonymous and untraceable. Unlike Monero, which forces all transactions to be private by default, cryptocurrencies that are being marketed as privacy coins, such as Zcash and Zclassic, are not private by default.
Both Zcash and Zclassic enable private transactions through zero knowledge cryptography technology called zk-SNARKS. However, the private transactions, which are known as shielded transactions, require significantly more computing power than a regular transparent transaction. It can take over 40 seconds and over 3 gigabytes of RAM to create an anonymous Zcash or Zclassic transaction. The supporters of these cryptocurrencies claim that transactions are only optionally private because these private transactions require more resources than a public transaction. Some Zcash wallets do not even support the ability to use private transactions. The developers of Zcash hope to change things in the future.
Zcash was created in 2016 by the Zerocoin Electric Coin Company. The CEO of the Zerocoin Electric Coin Company is Zooko Wilcox. For the first four years 20% of all Zcash mined will go to Wilcox’s company. The mining fee is called a “founders reward.” It started as a fork of Bitcoin, and was long hyped as a strong privacy coin because it enabled shielded transactions through zk-SNARKS. Similar to Bitcoin, it has a total supply of 21 million coins, but features a faster block time than Bitcoin. Zclassic started as a fork of Zcash just eight days after the release of Zcash. Its primary difference from Zcash was that it did not include the 4 year 20% miner fee.
On a blog post the developers of Zcash stated that they hope that in the future all transactions on the network will be shielded transactions. The next version of Zcash is said to feature faster shielded transactions. According to research conducted by Alex Vikati and Edwin Ong, 85% of Zcash transactions are transparent, traceable, public transactions. Shielded-to-transparent transactions accounted for 7.6% of transactions on the Zcash network, and 6.1% of Zcash transactions were transparent-to-shielded transactions.
Zclassic also had a majority of transparent transactions, with 69% of transactions on the network also being public. The researchers found that 15.1% of Zclassic transactions were shielded-to-transparent transactions and that 13.8% of Zclassic transactions were transparent-to-shielded transactions. The researchers also found that despite the increase in the number of total transactions of both Zcash and Zclassic, the percentage of shielded transactions has decreased over the last year, from 32% in February of 2017, to 11% in February of 2018.
A recent hard fork of both Zclassic and Bitcoin, known as Bitcoin Private, also uses zk-SNARKS to enable shielded transactions. Bitcoin Private is likely to also have a majority of transparent transactions and suffer from the same problems as Zcash and Zclassic. Cryptocurrencies which use zk-SNARKS must rely on a trusted setup. With a trusted setup the creators of cryptocurrencies like Zcash, Zclassic, and Bitcoin Private had to generate a master private key. Users of cryptocurrencies which utilize zk-SNARKS must trust that the developers of the coin are not lying when they say that they have destroyed the key. There is development on a new form of zero knowledge cryptography called zk-STARKS, which would not require a trusted setup. In addition to no longer requiring a trusted setup.
The users of darknet markets do not seem to have embraced Zcash, although AlphaBay was working on enabling Zcash transactions prior to being shutdown by law enforcement. For people who require financial privacy, it seems they are better off using cryptocurrencies such as Monero, which are true privacy coins, as they are not privacy-optional.