What is Zcash (ZEC)?
Zcash (ZEC) is a cryptocurrency that uses advanced applied cryptography to provide enhanced privacy via shielded addresses. Zcash is the first practical application of zk-SNARKs, a specific type of zero-knowledge proof. Zcash is based on Bitcoin's codebase. It shares many similarities, such as a fixed total supply of 21 million units. Transactions can be "transparent" and similar to bitcoin transactions in which case they are controlled by a t-addr, or they can be "shielded" and are controlled by a z-addr. A shielded transaction uses a type of zero-knowledge proof called zk-SNARKs, which provides anonymity to the coin holders in the transaction. Zcash coins are either in a transparent pool or a shielded pool. As of December 2017 only around 4% of Zcash coins were in the shielded pool and at that time most cryptocurrency wallet programs did not support z-addrs and no web-based wallets supported them. The shielded pool of Zcash coins were further analyzed for security and it was found that the anonymity set can be shrunk considerably by heuristics-based identifiable patterns of usage. Zcash affords private transactors the option of "selective disclosure", allowing a user to prove payment for auditing purposes.
Real World Example:
Zcash addresses are either private (z-addresses) or transparent (t-addresses). Private z-addresses start with a “z,” and transparent t-addresses start with a "t." Between these two types of addresses, there are four transaction types.
A Z-to-Z transaction appears on the public blockchain, so it is known to have occured and that the fees were paid. But the addresses, transaction amount and the memo field are all encrypted and not publicly visible. This type of encryption is only possible through the use of zero-knowledge proofs.
The owner of an address may choose to disclose z-address and transaction details with trusted third parties — think auditory and compliance needs — through the use of view keys and payment disclosure.
A T-to-T transaction works just like Bitcoin: The sender, receiver and transaction value are publicly visible. While many wallets and exchanges exclusively use t-addresseses today, many are moving to shielded addresses to better protect user privacy.
The two Zcash address types are interoperable. Funds can be transferred between z-addresses and t-addresses. However, it is important that users understand the privacy implications of shielding or de-shielding information through these transactions.
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