People often think Bitcoin is an anonymous cryptocurrency that allows completely private transactions when in reality it can be just the opposite. Since everything is recorded on a public blockchain, every transaction can be easily observed, of course all you can see are a bunch of letters (Wallets) and the amount transferred, but research shows that experts can easily trace payments back to the author, either through the history of the transactions, relation to 3rd party services or through analysis into transaction patterns themselves, thus making Bitcoin a pseudonymous cryptocurrency at best, where transactions are possible to trace. There are solutions implemented that can provide a certain level of anonymity, such as mixers (also known as tumblers) and ring signature based cryptocurrencies. But these require the evolvement of a third party and can also be traced to some degree. Mixers also prove to be troublesome, since coins can be traced back to them and cause them to potentially lose value based on their history. A solution is in the working, however, and it’s called ZCash
ZCash is a privacy driven cryptocurrency that has not yet been launched. The Z in ZCash stands for Zero, which stands for Zero Knowledge. ZCash plans to go live in September of 2016.
ZCash will provide a solution to the pseudonymity/anonymity problem: An encrypted blockchain. Seems contradictory at first, but ZCash will implement a decentralized, anonymous payment scheme (DAP scheme) that does not rely on digital signatures to validate coins, nor does it require a central bank to prevent double spending. Instead, it relies on zero-knowledge Succinct Non-interactive Arguments of Knowledge (zk-SNARKs) that allows a proving key and a veriﬁcation key to be created out of a nondeterministic decision. The result is a blockchain that will not reveal a singleunique information about transactions made: Sender, receiver and amount will all be encrypted information. The only data that will be available on the ZCash platform is the time in which the transactions took place.
Why do we need ZCash? Won’t it just make terrorist funding and cyber crime easier? Well, criminals will always take advantage of new technology to enhance their trade, and are often the first to do so. If we stood in the way of progress in fear of criminal activity, we wouldn’t have the Internet at all!
Privacy is important, and people should be allowed to choose which information they are willing to share about themselves, and that’s exactly what ZCash plans to offer their users: A chance to control their information. At first, ZCash will be a completely Zero Knowledge blockchain, but plans to provide privacy layers for users, to allow them which information they’re willing to share about their transactions. This feature is required to allow advanced functionalities such as smart contracts that will need certain bits of information to establish variables (such as wallet balance, transaction amount, recipient or sender address, etc).