Zcash, a Harder-to-Trace Virtual Currency, Generates Price Madness – The Fresh York Times
Zcash, a Harder-to-Trace Virtual Currency, Generates Price Madness
Speculators are snapping up a fresh virtual currency known as Zcash that was designed by university academics and built to be all but untraceable.
Investors were paying over $1,000 for a single unit of Zcash on Monday, a few days after the currency was very first brought online.
The company behind Zcash, led by a developer named Zooko Wilcox, has the support of privacy activists and computer scientists at Johns Hopkins University and Massachusetts Institute of Technology. It has already secured $Trio million in backing from a number of Silicon Valley venture capitalists who are involved in the virtual currency industry.
Zcash’s developers say they have used advanced cryptography to create a virtual currency that can be sent around the world essentially without a trace, unlike Bitcoin.
While Bitcoin was originally described as an anonymous currency, its transactions are recorded on a public ledger that can be tracked and traced by law enforcement. Each Bitcoin user has an address, made up of letters and numbers, and the authorities are often able to link an address to a real person using sophisticated data analysis.
In contrast, Zcash uses a method developed by a team of cryptographers working at M.I.T. and in Israel — known as zk-Snark — that permits transactions to be confirmed by the network without anyone recording the Zcash addresses involved in the transactions. Users can opt out of this privacy function.
The privacy features of Zcash could make it firmer for the currency to win support from regulators and bankers.
Investigators have used Bitcoin’s ledger, known as the blockchain, to track down some people selling drugs for Bitcoins on black market websites.
Such websites have proliferated since the very first popular black market site, the Silk Road, was taken down in late 2013.
Since the demise of the Silk Road, mainstream financial institutions have shown significant interest in virtual currencies and particularly in the blockchain technology, which provides a fresh decentralized way to keep financial records and to power transactions of all sorts. Major central banks have recently been talking about using the technology for their own currencies.
Most projects in the virtual currency area, however, have been pushing in directions that would make it lighter to integrate with the existing financial system.
Jonathan Levin, a founder of Chainalysis, a start-up that helps banks and regulators track activity on blockchains, said that the authorities had become convenient with virtual currencies because they had been able to trace transactions in cases of criminal activity.
“It’s going to be fairly difficult for Zcash in its opaqueness to display that, no, it is not all bad stuff going on,” he said.
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But Mr. Wilcox has the help of a former top Fresh York state financial regulator and a former federal prosecutor to help ease the concerns of government officials. Mr. Wilcox is hosting an open virtual meeting later this month with law enforcement officials from across the country to explain the project.
Mr. Wilcox and the programmers who created Zcash say that they developed the currency not to facilitate illegal activity but to provide a degree of privacy for people who do not want their financial transactions visible to the world.
“The basic story is that we have been little by little losing our privacy in a entire bunch of ways that people don’t appreciate,” said Matthew Green, an assistant professor at Johns Hopkins who began developing Zcash with some of his graduate students in 2013. “This brings back a little bit of that privacy that computers have taken away from us. This technology gives us a defense against something that until now we have been defenseless against.”
Mr. Wilcox said that existing virtual currencies have been unattractive to businesses because their transaction details are exposed to competitors, creating a business need for a more private virtual currency.
“All of the conversations I’ve had with businesses, banks, regulators and law enforcement have been about the need for data security for commercial applications,” he said.
Zcash is modeled closely on Bitcoin. The currency will be released leisurely to computers that help support the network underlying the currency. Fresh Zcash units will be distributed to users until there are twenty one million of them in the world. Primarily Zcash units are being released leisurely — as of Monday, only about 1,500 were out in the world, helping to feed the speculative madness around the currency.
The concepts behind Zcash were developed by Mr. Green and other academics, but the project is being run by a for-profit Delaware corporation, Zcash Electrified Coin Company, which is led by Mr. Wilcox. The corporation, developers and early investors will be compensated by what amounts to a ten percent charge on all the fresh Zcash generated by users during the very first four years of operation. Some of these coins will also be directed to a nonprofit Zcash foundation.
There have already been several efforts beyond Zcash to correct for the privacy shortcomings of Bitcoin. Many Bitcoin users run their coins through so-called tumblers that can obscure the origin of transactions.
Another relatively fresh virtual currency, Monero, came with anonymity built into the system. Earlier this year it was seized upon by speculators who shoved up the value of Monero significantly before the price fell back down. Unlike Zcash, Monero can already be used for purchases on black market websites.
Mr. Green, the Zcash developer, said that some people may look to the currency for illegal purposes. But he believes that ultimately the privacy it provides will secure its importance to the mainstream economy.
“You are going around on the Bitcoin blockchain leaving a trail of everything you do, which will last forever,” he said. “The idea of Zcash is you don’t have to go to special lengths to achieve privacy — privacy is baked into the system.”
A version of this article shows up in print on November 1, 2016, on Page B6 of the Fresh York edition with the headline: Zcash, Less Traceable Than Bitcoin, Draws Investors. Order Reprints | Today’s Paper | Subscribe
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