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Zcash — ready for the ‘Coinbase effect’

Coinbase trading a token like ZEC essentially bestows ‘blue ribbon’ status. The sway the company has on crypto markets is undeniable, but what is the substance behind the 'Coinbase effect'?

Coinbase has announced it will be accepting inbound transfers of Zcash (ZEC) from today on Coinbase Pro — with trading set to start as soon as Coinbase decides there is enough liquidity. ZEC trading will initially be accessible by US users (except for NY) in addition to the UK, European Union, Canada, Singapore and Australia. Coinbase says more territories may be added later. ZEC will not be available on Coinbase.com or via the Coinbase mobile apps.

Zcash was founded by cypherpunk Zooko Wilcox-O’Hearn in 2016. It is the first open, permission-less cryptocurrency that can fully protect the privacy of transactions using zero-knowledge cryptography. What makes Zero-knowledge proofing significant is it involves a prover being able to prove something to a verifier to be true, without revealing any other information about it – other than it being true. It is an innovative cryptographic technology and its usage for encryption is creating a significant buzz in the financial and crypto markets.

Zcash is built on Bitcoin’s core code but has the zero knowledge proof X-factor of offering multiple privacy options for any transaction made on its blockchain. The nodes can verify a highly private, hidden transactions because of ZK-Snark proofs, that perform computations on inputs without revealing information on the inputs, and then miners verify the ZK-Snark without actually interacting with other information like the transaction amount.

One major difference between Zcash and some other privacy-focused coins, is that shielding transactions is optional, unlike blockchains such as Monero, which has its privacy features working for all transactions. Interestingly, shielded transactions make up only around 14% of all transactions made on the Zcash ecosystem.

The impact of the ‘Coinbase effect’

Because of the exhaustive nature of the Coinbase token listing process, a connection to the platform can act as something of a golden ticket for a digital asset, making it part of a very exclusive club. In order to become a tradable digital asset on the Coinbase platform, a blockchain project must go through a review process which features a number of stages including;

  • an initial review by Coinbase’s internal asset selection committee.
  • a legal and risk review phase.
  • an approval process from the Coinbase executive committee.
  • a specific assessment of core code and engineering facilities.
  • and a final assessment of the asset’s liquidity capabilities, price stability and financial performance.

Members of the asset selection committee also follow strict confidentiality obligations, and protocol surrounding public information disclosure and trading activity.

When Coinbase integrated Litecoin into its trading systems in early May of 2017 it triggered an immediate surge in the transaction volume and price of LTC. From trading at $24.20 (Index) on May 4th, its price rose to $48.40 on June 18th, a 98.43% jump in less than 6 weeks.

Another recent benefactor of this ‘Coinbase effect’ has been the Ethereum Classic token. After the initial announcement that Coinbase would be adding ETC to the platform, its price has rose by around 30%. Conversely, over the same period its direct competitor ETH, fell by ~10%.

We have seen similar speculative jumps in other tokens which Coinbase has merely declared an interest in. Stellar Lumens (XLM), 0x (ZRX), BAT and Cardano (ADA) tokens have all performed well after announcements that Coinbase was considering them.

While an actual listing certainly means an asset is ‘in the club’ the impact on price momentum can be short lived, however. For example, once BAT was actually listed, markets were quick to make the assessment that its short term event-based speculative momentum had ended (with the given event occurring) and dumping ensued — evidenced by a reversal in BAT prices back towards pre-pump levels, with the BAT price falling close to 33% in the four days following its Coinbase listing.

Prudent Investors should be aware that many new buyers are not particularly interested in any fundamental or technological factors underlying these projects, and are likely to quickly sell off any newly acquired tokens if there is a reversal in the current positive sentiment.


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