Crypto Academy Week 16 - Homework Post for Professor @levycore | Privacy Coins|

Hello Steemians, welcome to week 16 of Steemit Crypto Academy. Today's lesson was delivered by professor @levycore on "Privacy Coins". The lesson was educative and well detailed with practical examples. In this post, I will be performing my homework on Privacy coins based on my understanding of the topic.

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Overview of Privacy Coin

The idea of decentralization in blockchain technology is to create transparency in transactions where everyone has a copy of transactions and account information can be viewed by anyone. Similarly, this idea aim at eliminating fraudulent activities and restoring trust and confidence among users in a network.

Bitcoin was introduced to replace the fiat currencies and provides decentralization in traditional finance due to setbacks encountered with the present method. Unfortunately, some users believed that the Bitcoin network does not provide the necessary features to protect users privacy. In the Bitcoin network, the transaction can be traced to the user using the public address which is recorded on the blockchain, the account balance can be viewed by anyone and the transactions history is made public. I have a friend who always monitors my Smart chain account by keeping tabs on my recent transactions and my account balance because he knows my smart chain address.

Privacy coins were developed to address this issue by protecting users identities by enabling them to carry out transactions anonymously. Privacy coins are categories of cryptocurrencies that enable users to carry out transactions on the blockchain while keeping the details of the transaction private. This can be in form of hiding a transaction wallet address and wallet balance. And also mixing up transactions to make it difficult to trace the origin of the sender or receiver.

Most cryptocurrencies are non-private. The run on blockchain that enables users to simply track transactions across the blockchain. However, privacy coins provide two anonymity and untraceability of transactions to users. This means that it will be very difficult to trace the identity behind a transaction and also, it will be very difficult to monitor users transactions on the blockchain.

Zcash

Zcash is a privacy cryptocurrency that was launched in 2016 by Electric Coin Company. Zcash is a fork of Bitcoin and the idea that led to the invention of Zcash revolves around Bitcoin. Bitcoin was the first cryptocurrency that was designed to be decentralised and create transparency.
Transactions using Bitcoin is made traceable and the wallet addresses are made public. The concern of users revealing their identity on the blockchain using Bitcoin led to the creation of Zcash.

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Zcash was founded by Zooko Wilcox to provide privacy to users. Zcash provides complete privacy to its users, meaning that the users' identity or wallet address cannot be revealed to a third during a transaction. Zcash uses **zk-SNARK (Zero-knowledge Succinct Non-interactive Argument of Knowledge) privacy protection technology to provide anonymity and untraceability to its users.

Zcash Privacy Technology: Zk-SNARK

Zcash uses the zero-knowledge cryptography which guarantees transaction privacy by providing shielded transactions and encrypting them in the blockchain without affecting the verification of the transaction. The zk-SNARK refers to a proof construction where a user can proof the existence of information to a third party without revealing the information or having any interaction with the third party.

Zk-SNARK technology enables a user (the prover) to convince another user (verifier) that a piece of information is true without revealing the details of the information to the verifier, thus providing a secured environment for Anonymous user to interact with each other without revealing any details of either party. For example, I can convince you that a random number exist, by revealing the number itself to you. Zcash utilizes Zk-SNARK technology by encoding some of its network consensus rules to provide privacy in transactions.

How Zcash is created

Zcash is created in a similar way to other cryptocurrencies through mining. Zcash uses the Proof-of-Work (PoW) consensus model which is the same as the Bitcoin network. Miner solve complex algorithms using a computer and get rewarded in Zcash. Similarly, miners also get rewarded for devoting computing power in completing transactions on Zcash blockchain.
Previously, Zcash miners receive 80% of ZEC created while the founders receive 20%. The idea was agreed by both parties to distribute 10% to Zcash foundation until the end of 2020. Currently, Zcash miners receive 100% of all ZEC created.

Benefits of Zcash

• Privacy: Zcash has the same objective as Bitcoin to be a payment system. But it differs from Bitcoin in the sense that it guarantees users privacy and facilitates the transfer of funds in a cheaper and faster way.

• Faster Transaction: Using a traditional banking system takes a day to settle and verify an international payment. Zcash blockchain takes 2.5 minutes to confirm a block. This makes Zcash a quicker means of transaction compared to the Bitcoin network which takes 10 minutes to confirm a block.

• Lower Transaction fee: Transaction using Zcash is very cheap compared to transacting with banks. Zcash team believe that it will be adopted by the financial institutions for payment purposes. Zcash transaction is as low as 0.0001 Zcash.

• Ease of Mining: Zcash is mined the same as Bitcoin miners operate. It allows miners to solve complex algorithms and get Zcash as a reward. This is known as the Proof-of-work (PoW) consensus model. Mining Bitcoin is very expensive and difficult as it requires expensive ASIC hardware. But in Zcash, mining is done using GPU or CPU. These are more cheaper and allows everyone to mine Zcash.

Technical overview of Zcash

Technical details	Overview
Blockchain	Own blockchain
Consensus method	Proof-of-Work (PoW)
Block time	2.5 minutes
Hash Function	SHA-256
Open Source	Yes
Mining method	GPU or CPU
Network hash rate	Up to 8.1 Gh/s

Market Stat of Zcash (ZEC)

Stat	Overview
Price at the time of writing this post	$154
Rank by marketcap	56 with a marketcap of $1.83 billion
Total supply	11.9 million
Circulating supply	11.9 million
Market dominance	0.11%
24 hours Trading volume	$548.17 million

Zcash Market

Zcash has a market dominance of 0.11% and the cryptocurrency is currently trading in the top 10 cryptocurrency exchanges including Binance, Coinbase, Huobi Global, KuCoin, Gate.io, Bitfinex etc. Binance has the highest liquidity of 670 and 24hour volume of $55 million which is followed by Huobi Global exchange with liquidity of 327 and a 24 hours volume of $34.26 million. The details of Zcash market can be seen in the screenshot below.

_{Zcash Market}

Zcash Wallet

Zcash can be stored in several wallets include exchange wallet, cold wallet, hot wallet and web wallet. A user has to be careful in selecting the desired wallet to store Zcash. The picture below shows the available wallets to store Zcash. Below are mobile wallet with shielded-address support.

_{Zcash shielded Wallet}

_{Zcash transparent Wallet}

How to Create Zcash Wallet

In this section, I will be explaining how to create Zcash wallet on Zecwallet lite mobile app. The steps include:

• Visit Google playstore and download Zecwallet lite.
• After installation, click Open.

• After you have launched the app, you will be faced with two options. The first option is to create a new wallet if you don't have a Zcash wallet. The second option is to restore seed. This is required if you already have a Zcash wallet and you want to import it.
  But for this illustration, I will be creating a new Zcash wallet.
• So I will click on Create new wallet. After that, a new page pops up with Seed phrase to my new wallet. This seed phrase will be used to access my wallet on any platform that supports Zcash. Similarly, this seed phrase will be used to restore my wallet in case I lose access to my phone. It is recommended to keep it safe and away from any third party access.
• After you have copied and saved the seed phrase, click on I have saved the seed.

• Congratulations, I have created a Zcash wallet. From the screenshot below, we can see I have successfully created a Zcash wallet.
• To send ZEC to a user, click on Send at the bottom left corner to switch to the sending page.

• Similarly, to receive ZEC, there are two addresses available. The first one is the shielded address (z address). Using a shielded address means that zero-knowledge proof will be used to secure the privacy of transaction data. This means that the address, the amount transferred and the memo will be shielded from the public.
• The next address is the transparent address (t-address). Transparency address work like other cryptocurrency address like Bitcoin address. This address doesn't provide privacy of transaction data.

Why Zcash

Zcash is a unique cryptocurrency that protects users transaction data. Similarly, transacting with Zcash is more efficient, safely and with a very low transaction fee as low as 0.0001 Zcash. Similarly, Zcash shielded address enables a user to protect the privacy of their transaction and share selective information they wish to share with the third party. Another amazing feature about Zcash is payment disclosure. Though transaction details are shielded, both the sender and receiver can disclose some transaction data through encrypted memo which knowing the address of each other.

Advantages of Zcash

• Privacy:Most users prefer their transaction data to be kept private from the public. Zcash makes use of zk-SNARK privacy protection to provide shield addresses making it possible to hide and secure transaction data.

• ASIC-resistant: Unlike Bitcoin that uses ASIC hardware which is expensive and energy-consuming. Zcash uses CPU and GPU which is more cheaper and energy-efficient than ASIC machines.

• Ownership: Zcash holder have access to their private key which enable them to share transaction data to third parties. This key can be shared with government agencies or regulators for transaction audits.

• Faster transaction: Transactions on Zcash platform is carried out faster. Each block is settled in 2.5 minutes which is faster than the Bitcoin network. Also, these transactions are carried out at a very low rate.

• Less vulnerable to attack: Zcash network limits the number of shielded transaction and this makes it prone to attack by hackers. With this, the knowledge of newly minted coins will be kept out of hackers to avoid spending the coins before a user can.

Disadvantages of Zcash

• Privacy: While cryptocurrency aims at bringing transparency and trust in carrying out transactions. Privacy coins like Zcash can be used to carry out fraudulent activities and they can also be used by dark web hackers for money laundering and selling illegal goods.

• ASIC miners: ASIC manufacturers revealed the plans of developing ASIC miner that can effectively mine Equihash network like Zcash. When this happens, centralization will be brought into Zcash mining and this will make it difficult to mine Zcash with GPU or CPU.

• Possible Centralization: 10% of Zcash total supply is held by the team. This leaves investors in doubt about the decentralised nature of the cryptocurrency.

• Government Ban: Most exchanges delist or suspend the trading of privacy cryptocurrencies flagged by regulatory agencies. This is due to the fact that transactions using these currencies cannot be traced or regulated.

In conclusion, Privacy coins getting more recognition and adopted in the cryptocurrency industry by ensuring anonymity of transactions to users. Though the future of privacy coins can be questioned as they can be used to carry out illegal activities and money laundering without having any details of the transaction. Zcash is no doubt the leading privacy coin that has gained the masses attention. Zk-SNARK privacy technology guarantees privacy and safety of transactions across Zcash platform. Thank you professor @levycore for this amazing lesson.