Introduction to ZCash – Part 2

zk-SNARK explained

In zk-SNARK, zk stands for “zero knowledge.” SNARK is an abbreviation for “Succinct Non-Interactive Argument of Knowledge.”

The word “succinct” in the name of the method means that the length of a message that allows a sender to convince a verifier about the validity of the message is short compared to the length of actual information that the message is about.

“Non-interactive” means that there’s no or very little interaction between the parties. Typically, there’s only one message.

“ARguments” means that there is protection against wrong statements from participants with enough computational power. Is it important to mention here that with enough computational power any blockchain network and encryption can be broken. One of the reasons why bitcoin and other blockchain networks are safe to use today is because a computer that could break the cryptography behind the networks does not exist. However, this doesn’t mean that such a computer won’t exist at some point in the future.

Finally, “Knowledge,” for which K stands in SNARK, means that the entity that wants to prove a statement can’t do so without having certain knowledge, such as an address where the coins are coming from.


Scarcity and founders’ rewards

Just like bitcoin, ZCash will eventually have 21 million coins on the network. Also just like on the bitcoin network, ZCash miners mine coins eventually over time. What makes ZCash different from other coins is that 10% of the mining reward during the first four years of the existence of the currency goes to the founders of the network. ZCash creators have developed the network this way so that there is an incentive for them to keep working on improving and developing the network and this incentive is publicly known and transparent. Out of the 10%, investors who initially supplied funds to create the network will get 1.65% of the total coin circulation.

In 2016, ZCash raised over$2 million from investors that included Vlad Zamfir, Roger Ver, Maple Ventures, and Fred Ehrsam. ZCash published all the data about the investment rounds on its website. The total amount it raised by September of 2016 was $3 million. The investors of the $2 million round valued the company at $32 million and collectively all the investors owned 16.4% of the entity. As a part of the agreement, investors received not only a right to future ZCash token, but also a stake in the ZCash Electric Coin company, which the founders of the ZCash network said can have value independent from ZCash network.

Eventually, founders, their advisors and employees of the company will get 5.72% of the entire coin reward. The biggest receivers of the funds will be ZCash Strategic Reserve and a non-profit called ZCash Foundation. The reserve will get 1.19% and the foundation will get 1.44%. The mission of the reserve is to fund new improvements of the network and the foundation will be maintaining the protocol.


Privacy issues

In the past, ZCash team members said that if Bitcoin is similar to http protocol on the Internet, then ZCash is https. The opportunity to have transactions in which details are hidden obviously makes the currency very attractive to criminals and parties engaging in activities of questionable legal status. However, ZCash founders insist that a person or an entity may have quite a few legitimate reasons to want to protect their privacy. For example, a person with a medical condition may not want for others to know about the condition and may want to purchase medicine online anonymously. A business may want to pay its vendors and partners anonymously because it doesn’t want the competition to be able to identify its vendors and partners. Finally, a company that provides legal services may also want to shield the privacy of its clients by using a system that offers fully anonymous payments.