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Zcash momentarily becomes the world’s most valuable cryptocurrency

The latest cryptocurrency to enter the market, Zcash (ZEC), mined its genesis block on Friday. Within 40 minutes of trading on Poloniex, a high of 3,299.99 bitcoins to one ZEC was recorded, or about US$2.3 million for each Zcash coin.

The latest cryptocurrency to enter the market, Zcash (ZEC), mined its genesis block on Friday. Within 40 minutes of trading on Poloniex, a high of 3,299.99 bitcoins to one ZEC was recorded, or about US$2.3 million for each Zcash coin.

Although the hysteria was unprecedented, even in the cryptocurrency space, the reason for this lofty level of value was the greatly reduced supply of coins due to a month-long, “Slow start,” release schedule. The volume of trading on Poloniex in the historic five-minute window was only 0.117 ZEC, worth about $268,383.

Zcash High Oct 2016

The price of ZEC steadily declined after Friday’s peak. Around 2pm Eastern time on Sunday it fell below the price of bitcoin. Soon afterward it hit a low of 0.705 BTC ($510), where it has found some support, making it one of the most valuable cryptocurrencies.

The coins current market cap, $624,280, makes it the 38th largest. This is due to the tiny supply coins mined so far, only about 1,100 at press time. The currency also has no working windows wallets, and many other development pieces of the puzzle are still left unfinished.

However,  ZEC has been the most profitable currency to mine, as listed by Coinwarz. To ensure the mining software would be available, a month-long development contest was held, with a $30,000 grand prize for developing the most advanced Zcash mining software. While it is unclear where the prize money is coming from, or how much involvement the Zcash team had with the contest, eight different projects made the deadline.

As the price of ZEC has dropped mining has been getting easier, but less profitable. For those that had large banks of graphics processing power (GPUs) to mine with on Friday, ZEC was extremely profitable. It’s still the most profitable coin to mine today for those using GPUs.

“Incentivizing the creation of open source miners will enable a wider community to mine for Zcash coins and take ownership of the network as a public good. While we expect a full range in size of Zcash miners to exist, the more individuals who run a miner (whether GPU or CPU) the stronger the network.”

-ZCashMiners

Zcash is described by its developers as “a decentralized and open-source cryptocurrency that offers privacy and selective transparency of transactions,” and it is clear that complete privacy of transactions was the goal of the project.

The large and talented team behind Zcash, led by famed cryptographer Zooko Wilcox, has many from the existing development team from earlier projects Zerocoin and Zerocash. Both Zerocash and Zcash are based on Zerocoin.

As a fork of the original bitcoin core code, it operates like bitcoin in many ways, and has the same 21 million coin limit. However, the project has two major changes as well as several minor ones.

The biggest change is the implementation of a breakthrough zero-knowledge proof called “zk-SNARKs,” or zero-knowledge succinct non-interactive arguments of knowledge. This highly technical cryptographic feat allows verification of a given transaction, while preserving the complete privacy of the transaction details. This includes the sender’s address, the recipient’s address, and the value of the amount sent.

This creates a system with two separate types of addresses. The Zcash block explorer only shows addresses that start with the letter “t.” Those that start with a “z” aren’t visible. While z addresses can only send amounts to other addresses in complete privacy, Multisignature and other special transactions can still be done with a t address, in much the same way as bitcoin.

Another major change is in mining decentralization. In place of bitcoin’s SHA256 hashing function, a new, “ASIC-resistant” formula for mining ZEC was introduced, called Equihash. The algorithm was created to keep the large, centralized ASIC mining farms at bay, and attempts to ensure that everyone with a graphics card can keep mining and earning some amount of Zcash, which in turn makes the network more decentralized.

A smaller difference between the two currencies is the shorter time between Zcash blocks, at two and a half minutes compared to bitcoin’s ten-minutes. With the current Zcash block reward of 3.125 ZEC, instead of bitcoin’s 12.5 BTC, the two systems produce the same amount of coins per every ten-minute cycle. A message was embedded in the Genesis block of Zcash, naming an article in the Economist, and also giving the current block height of Bitcoin at the time.

The Economist logo“Many such ‘altcoins’ are dubious affairs and don’t add much. But this one brings important innovations.”
— – The Economist

The hype building up to the launch of Zcash was simply unprecedented. Long before the launch, many of the most famous developers and speakers in the bitcoin space, including several confirmed bitcoin maximalists, praised the altcoin for its’ advanced privacy-enhancing cryptography.

Bitcoin developers Adam Back, Nick Szabo, Gavin Andresen, Pieter Wuille, Jeff Garzik, and Vitalik Buterin all offered support to the project. Among the founding investors were several venture groups like Pantera Capital and DCG, plus notable bitcoin investors Roger Ver, Erik Voorhees, Fred Ersham, Ben Davenport, Xiaolai Li, Bo Shen, Dan Moorehead, Steve Waterhouse, and Barry Silbert.

Investors will be repaid in ZEC over the next year by an innovative, “Founders fund,” of mined coins that come out of every single block.

Zcash logo“Our goal is not to invent something that bad guys can’t use, it is to invent something that can empower and uplift the billions of good people on this planet.”
— – Zcash

Zcash is a company based in California, so many online have speculated what would happen if the US government has a serious problem with the platform. Although the team has a four-person legal counsel listed on their website, Zcash hasn’t said anything more about the potential outcome other than to stress what their objectives are.

Another detail that several critics online have found concerning about Zcash is the previous donor list to the Zerocash project, which includes U.S. Defense Advanced Research Projects Agency (DARPA), the Air Force Research Laboratory (AFRL), Office of Naval Research, Center for Science of Information (CSoI), European Community’s Seventh Framework Programme, and the Israeli Ministry of Science and Technology.

Since many on the Zcash team are highly-educated cryptographers whose university cryptography departments regularly receive funds from these organizations, it shouldn’t come as a shock to see these names behind the project at some stage. For now, investor confidence is still high and two separate third-party audits gave Zcash an imperfect, but clean-enough bill of health.

“Zcash is still in a nascent stage, it is experimental and new; users are encouraged to educate themselves about the risks involved in being a direct part of the Zcash protocol and network.”
— – Zcash


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