One of the most sophisticated and innovative blockchain projects is set to launch on October 28, 2016. The project is called ZCASH and aims to create a fully anonymous open-source blockchain that leaves zero trace.
ZCASH is founded by Zooko Wilcox, an old school cypherpunk who’s been working on crypto projects for most of his life. He recently founded a company called ZCASH Electric Coin Company. The company is responsible for building the ZCASH project, yet the code will be open-source and mining will be decentralized.
The company raised $3 million in funding from private investors who will receive a founders reward, as well as equity in the company. How the founders reward works is that 20% of the mining rewards for the first four years will go to the company and their investors. This will be a total of 2.1 million coins, which is 10% of the entire 21 million coin supply.
ZCASH aims to keep their mining friendly to CPU and perhaps even GPU. The process is made to be memory intensive to prevent mining from being dominated by ASICs (application specific integrated circuits).
Solving Bitcoin’s Fungibility Problem
ZCASH has a very similar model to Bitcoin, except that its anonymous transactions can help solve issues with fungibility. The problem with having all transactions openly traceable on a public ledger is that some coins may be “tainted” from thefts or association with the dark markets. Coinbase is a bitcoin exchange that routinely shuts down accounts if users happen to have tainted coins or send their money to gambling sites.
Money needs to be fully fungible in order for it to work properly. Regular Bitcoin users shouldn’t have to worry about the problems associated with tainted coins. Privacy is another concern because our financial information can be tracked by big data companies. That said, Bitcoin is working on addressing some of these issues by encrypting data from nodes. Also, because ZCASH is open-source it may be possible to use some of their code to fix the Bitcoin protocol.
Pre-Market Valuation
When ZCASH goes live the supply will be trickled slowly with 50 coins per block, every 10 minutes, which will be 7200 coins per day. After the first year there will be a total of 2,628,000 coins, with 525,600 of those going to the founders.
There seems to be a lot of hype around ZCASH, so the market demand could be high. Initial investors are getting their coins for $15.24, yet this also includes equity in the company. BitMex offers pre-market futures contracts, and the price is currently $74 per coin but the order book is illiquid.
Although market demand may be high, a $74 pre-market valuation seems a bit excessive. The crypto industry tends to be driven by overexuberant bullishness, which can create pre-market bubbles. The DAO was a prime example of too much money being shovelled into a project with weak fundamentals.
ZCASH does have all the hallmarks of being the next huge crypto market and early adopters have the potential to make a nice ROI. That said, this is a new experiment and there may be unforeseen issues once the network goes live.
Concerns With The Project
The biggest concern with ZCASH is that the initial set up requires trust in a third party. If anyone keeps the private keys for the genesis block then they could potentially inflate the supply beyond the original social contract of 21 million coins. Since transactions are anonymous, it may be impossible to tell if the supply was being inflated.
Another concern is that the project is being launched by a centralized company, which can be targeted by regulators. Offering an anonymous financial network may draw attention from the Feds, which could have a bearish impact on the price.
Satoshi Nakamoto was anonymous for a reason and if Bitcoin was created by a company then we likely wouldn’t have the same blockchain industry we have today. One example is how Ripple Labs was fined $700K last year from FinCEN for violating the Bank Secrecy Act. This was because they weren’t enforcing KYC/AML standards for users trading on their protocol. Eventually the company closed down the Ripple trade feature, and the markets went on a long bear trend.
That said, once ZCASH is released, its open source code and mining will give the network a life of its own, making it decentralized and difficult to shut down.
Rocky
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