What is Zcash?
Zcash is a decentralised blockchain based on the source code of Bitcoin. Its main feature is that it allows for anonymity of transaction amounts and parties. Unlike Bitcoin where you can see all transactions if you know a user’s address.
The protocol that would eventually become Zcash began in 2014. At the time, it was known as Zerocash, which had evolved from an existing project called Zerocoin. The researchers made it more efficient and more private when developing it.
Walkthrough Video that Explains How to Buy Zcash Online
The Zcash project was formally implemented as a cryptocurrency in January 2016, which was then followed by the first mining of Zcash tokens in October 2016.
Similar to Bitcoin, it plans to only produce a set number of tokens (21 million), where the reward will be halved every four years. This is to control inflation.
Zcash was the first cryptocurrency to go private, which it argues is critical to a person’s freedom. 'The right to privacy'.
How does Zcash work?
Miners verify the transactions, which is difficult if they do not know the amount or the parties involved in the transactions. How can they prove to solve a problem without showing the solution? It is like saying you can prove where wheres wally is, without showing someone where wheres wally is. What? How?
Zcash uses zero knowledge proofs, which proves that you have performed a computation without revealing the inputs. Otherwise known as zk-snarks. This uses the law of averages and requires trust between users.
- User A (Anne) needs to prove to user B (Bob) that she knows the secret without telling Bob (or anyone else) the secret.
- Anne gives the correct answer to Bob (because she knows the secret).
- If the protocol was only performed once, Bob should not be convinced that Anne knows the answer because it could have been a fluke.
- How can Anne prove he knows the answer without giving the answer?
- Anne can repeat the protocol and give the correct answer every time.
- The probability of Anne not knowing the answer reduces. This leads Bob to believe Anne.
This protocol is then repeated between users and you end up with a network of anonymous transactions. The more trust in the network the stronger the network becomes. The network therefore functions on a basis of trust between users.
A secure ledger of balances without disclosing participants and transactions is maintained using this system.
Does it have to be anonymous?
Each user is given two types of address. One is a fully private address (z-addr) and the other is a transparent address, similar to a Bitcoin address (t-addr).
A user therefore has options to their anonymity in respect to their address. Zcash has also provided another feature which is selective transparency. This gives the user the ability to provide a view key to unveil the transaction.
Now you may ask, 'what is the motivation to add a feature of selective disclosure if they want to be a private network?'
It allows users to comply with anti-money laundering and tax regulations. As you can imagine, completely anonymous transactions are a very attractive proposition for criminals looking to hide their money.
So much so that the founder Zooko Wilcox has hosted virtual meetings with law enforcement agencies around the U.S and gone on record saying that "they did not develop the currency to facilitate illegal activity".
This type of negative public relations is never a good thing for an assets price.
Company not Community
Zcash has also come under other criticism in the way it distributes the cryptocurrency. Zcash was originally set up as a company rather than an opensource community. They then taxed miners and rewarded those tokens to the investors and workers in the company, otherwise known as 'founder’s rewards'.
The 'founders reward' will last for the first four years and will be 20% of all Zcash tokens mined.
Should I buy or trade Zcash?
Despite the controversies that often surround Zcash, it has made huge gains in the crypto market share league table. It has mixed with the big boys in the top ten but is currently sitting in 16th position. This shows that despite any negative PR investors are still interested in this cryptocurrency.
In April this year Zcash was included among the cryptocurrencies that is managed by Jaxx, a wallet platform available for Android and iOS. Getting the fifth spot on Jaxx's platform again shows the rate at which this cryptocurrency is growing and how highly regarded it is.
One of the big pluses Zcash holds over Bitcoin is that there has always been that niggling feeling with Bitcoin that due to the individual Bitcoin tokens history, some may be more valuable than others. This will not be the case for Zcash because of its anonymity nature.
You can trade Zcash through exchanges like Bittrex and Poloniex, which make trading very easy however you must have a wallet for your coins to be stored.
The alternative to trading through exchanges is to trade Zcash as a derivative which unfortunately you can not do at the moment. You are able to trade some cryptocurrencies as CFDs, these include unsurprisingly Bitcoin and Ethereum but Zcash still has some way to go to convince these brokers that they are a big enough and liquid enough currency to trade via CFDs.
Cryptocurrency volatility provides plenty of opportunity for traders to pin point entries and exits in the market. Identifying these swings can be very profitable however like any investment you do open yourself up to significant risk. Given cryptocurrencies appear to be getting more volatile, caution is advised when looking for trading opportunuities.
How to buy Zcash online - step by step guide
Zcash, the anonymous cryptocurrency, has not made the cut yet for a place on some of the big crypto exchanges. The likes of Coinbase, still only offer three currencies and other exchanges that allow you to trade cryptocurrencies for fiat currencies have not taken to Zcash yet.
This means that in order to buy Zcash, you must first buy another, more established, cryptocurrency. Bitcoin, being the market leader, is an obvious choice. You can buy Bitcoin on Coinbase using GBP, USD and EUR, which is obviously not ideal if you do not have any of these fiat currencies. Due to Coinbases excellent reputation, it is one of the exchanges I recommend if you do have those currencies. Having an exchange you trust is imperative.
This does create an extra step when buying Zcash, you need to buy Bitcoin first and the exchange it for Zcash.
When you open a Coinbase account you will automatically be given acccess to a crypto wallet. You must also open a Zcash wallet, this will be where you store your Zcash tokens. The wallet can be stored online or on your laptop and acts similar to your email. You will be given an address people can send Zcash to and a password that keeps your wallet secure. Lots of crypto wallets now offer two types of authentication to access your wallet for extra security.
Step by step to buying Zcash.
- As we mentioned, we need to purchase another crypto coin first, in this example we are going to use Bitcoin (because it's the market leader). Coinbase is a trustworthy exchange where you can buy Bitcoin using fiat currency, simply sign up using the form like below.
- You will be required to verify your identity, which shows the security measures Coinbase uses. This can take some time but once it is done you will be able to buy some Bitcoin using fiat currency. To get to this point you need to tell Coinbase what payment method you intend to use (bank transfer or credit / debit card).
- Once you are verified, you will be able to fund your account using dollars, euros and pounds. Once the account is funded you can then easily buy Bitcoin with the amount you have deposited.
- Now, you must use an exchange to trade your Bitcoins fort Zcash. There are multiple out there but if you try Coinswitch, if can compare a few of the well known exchanges and give you the best prices.
- On coinswitch.co, choose the correct crypto you want to trade and click 'continue' to get to the price comparison page.
- Bitcoin goes into the 'You have' section, Coinswitch will then use the exchange rate and give you the amount of Zcash you are due.
- You will then be required to enter you Zcash wallet address into the section it asks for it. The person who you buy the Zcash off will then send their Zcash to your wallet address (you will send your Bitcoin to the address you are given). Click 'I agree to terms' and continue.
- As mentioned you will then receive an address to send your Bitcoins to. You must go back to Coinbase and using their platform send the agreed amount of Bitcoin to the recipient.
How to buy Zcash with a credit card
Currently you cannot buy Zcash with a credit card directly. You must use the process highlighted above or something similar just using a different exchange that allows you to buy a well established cryptocurrency that you can trade for Zcash.
This is arguably the safest method to buying Zcash using a credit card. If you find sites or other means of buying Zcash directly then do approach with caution because there are scam sites out there that are looking to take advantage of new crypto traders.
How to trade Zcash
You can trade Zcash by actually purchasing the asset itself and holding it in a wallet however currently you cannot trade Zcash as a CFD or any other product.
Zcash is a fairly big cryptocurrerncy and so is available on lots of exchanges. Poloniex, Bittrex are both popular exchanges but most will offer Zcash as a tradable asset.
If you are looking to trade cryptocurrencies as a CFD, there are now lots of brokers out there that are making it available on their platforms. For the moment they are only using the larger cryptocurrencies because they offer high liquidity, as soon as smaller coins can offer similar sort of liquidity I would imagine we will see them on the broker platforms as well.
AVA Trade is a highly rated broker who have diversified into trading crypto, to sign up follow the process highlighted below.
- Go to the AVATrade site and sign up using the form below. Alternatively, you can sign up using Facebook or Google+.
- AVA Trade requires you to have a level of knowledge of the financial markets before giving you an account, to show this you must answer a few questions they set out in a questionnaire.
- You will then be asked to select an account and I would recommend selecting 'Floating Spread Account' with MetaTrader4 (MT4). MT4 is used worldwide by traders and accomodates hundreds of brokers, being able to use this platform will be a huge benefit.
- Once your account is open, you must fund it. Decide how to fund the account (credit / debit card or bank transfer) and then all you need to do is either download the platform or use the web version.
The future of Zcash trading
As we mentioned earlier, one of the biggest positives of having a private network of transactions is that a token cannot take a higher or lower value than another based on its transaction history. This is a problem that some of the larger cryptocurrencies are having to think about.
The founder of Zcash Zooko Wilcox certainly sees a future in the cryptocurrency, this is a quote from him regarding his hopes for the cryptocurrency - "The dream is that people all around the world use Zcash and other cryptocurrencies directly, to cooperate and organise with one another in safety and privacy. This will give them freedom from corrupt regimes, banks and unstable national currencies."
This clearly shows the intention of the group behind Zcash, which is always a positive for investors when they see the management tree as a strong and positive one.
My concerns still fall in the fact that it is an easy way to hide and transfer your money. This will always come under a cloud of doubt when it comes to money laundering and tax avoidance. With millions being moved in the illegal drugs trade, I feel Zcash would be a perfect platform for these endeavours.
Bitcoin has already shown that being able to track transactions can result in criminal prosecutions. Using the Bitcoin blockchain, prosecutors were able to trace $13.4 million from the drug site Silk Road to Ross Ulbricht's laptop (Silk Road was an online black market, best known for selling illegal drugs).
With the founder of Zcash having to repeatedly meet with law enforcement authorities to educate them on how the network works, this negative PR will always bring anxiety to investors.
There are pros and cons to Zcash, it has its controversies whilst at the same time offering something that very few cryptocurrencies can offer - the right to privacy. This right is something that is not going anywhere and I think people will still want access to a private transaction network. Whether it has the legs to over take some of the current leading cryptocurrencies I am not sure but I do think its pluses will always keep it competitive in the market.
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- How to buy and trade Zcash