Zcash v ZenCash

Zcash v ZenCash

I have been interested in privacy protecting cryptocurrency coins for a number of years. There have been a number of attempts at creating privacy coins. In earlier years Dash and Monero promised increased privacy. Dash's implementation of CoinJoin, Darksend, attempts to mix coins to obfuscate the trail from the sender to the receiver addresses. The problem with this is twofold. Firstly the capacity of adversaries to trace coins through looking for patterns through the mix has increased exponentially. There is continued improvement of software capable of finding patterns and connections through the mixing process. In my view, this means that ALL transactions sent through a mixing process such as Darksend can be traced by a sufficiently determined adversary with sufficient resources. This is not to mention the problem that with Dash mixing is done by Masternodes, most of which are hosted by a few large shared server VPS providers. Think AWS, Azure, Digital Ocean and so on. It would be technically trivial for government actors to monitor these VPSs with collaboration from the server provider.

Monero also faces the mixing problem, but in shocking news last month a bug was publically revealed. It's impact? It basically made all "private" transactions not private at all.

Two relatively new coins, Zcash and ZenCash, have emerged that have tried to solve the privacy and fungibility problems by using zero knowledge proofs. The privacy mechanism in these coins works very differently from the "mixing" process described above, where coins can be traced through network analysis. In Zcash and ZenCash a private currency exists that divulges neither the sender address, receiver address, or amount sent. This is fundamentally different to mixing, and a fundamentally superior in terms of facilitating real privacy. The zero knowledge proof algorithm used in both Zcash and ZenCash is called zk-SNARKs.

Zcash was the first coin to use zk-ZNARKs. ZenCash is a newly released coin based on the open source Zcash code. But ZenCash has made a number of modifications to the system, and it has a different funding model.

With Zcash There is a Founders Reward. Founders, ie. developers, receive 20% of the block reward for the first four years, and the miners receive the remaining 80%. After four years, the developers percentage of the block reward drops to 10%.

With ZenCash, the mining reward is split 88% for miners, 5% for DAO, 3.5% for developers, and 3.5% for operators of secure nodes.

Which brings us to a second difference between ZenCash and Zcash. ZenCash will implement a secure node system in addition to the normal nodes that both it and Zcash will have. Now given what has been written above about the problems with the Dash Masternode system, initially one asks oneself, isn't it bad then to have a secure node system?

The answer is no, for two reasons. Firstly zero knowledge proofs like ZenCash and Zcash don't operate with mixing the way Dash does. Secondly, the secure nodes will have strict compulsory setup requirements, one of which is that all communication is encrypted at all times.

Another difference between Zcash and ZenCash will be secure message which forms an optional memo field for transactions. Both systems can be used to send secure messages via this memo field. But for Zcash the maximum length will be 512 bytes, whereas in ZenCash it will be twice as long at 1024 bytes.

While they have differences, there are also similarities between Zcash and ZenCash. Apart from the obvious, the same source code, both Zcash and ZenCash have excellent and committed developers. Both teams have highly expert team members with a range of cutting edge technical skills.

In light of all this, which coin would I invest in, Zcash or ZenCash? Clearly this depends on the likely success and value growth in each of these coins going forward. At the present, Zcash is a much, much larger coin, with over $400 million market coin. It has been around longer. ZenCash is relatively knew, and has a comparatively tiny market cap at present under $20 million. It is hard to say whether a large marketcap coin has "had its run" and has less room for exponential growth, or whether it will go from strength to strength.

One upside I see with ZenCash is the secure node system. It allows for investors to generate a passive income. I think that is something that is likely to be appealing to many investors, and could both reward early investors and put upward pressure on the price in the future, as investors will have to "tie up" and "stake" a certain number of coins in exchange for having the right to run a secure node.

At the end of the day, I would not be confident in picking either Zcash or ZenCash over the other. I will invest a portion of my privacy coin investment funds into both coins.