Bitcoin adoption has been steadily growing over the last 24 months, and many are beginning to turn to the digital currency as both a form of payment and an investment vehicle. While Bitcoin continues to dominate the market, it currently suffers from a key flaw: privacy. In short, all of its transactions are broadcasted on a public ledger, resulting in a less than private form of digital currency. Research has shown that external information, such as public addresses, can be used to link identities and organizations to transactions. Furthermore, web merchants routinely leak data about purchases, and that can make it straightforward to link individuals with their Bitcoin purchases, say cybersecurity researchers.

All-in-all, privacy is an area of growing interest for digital currency users and a number of projects are actively building platforms that allow for unidentifiable transactions. Zcoin is one of those projects, as they are developing the first cryptocurrency to implement the Zerocoin protocol, a cryptographic extension of Bitcoin that augments the protocol to allow for fully anonymous currency transactions. Ultimately, Zcoin hopes to develop a truly secure and private platform that works for everything, from P2P transactions to more commercial applications.

Interested in ZCoin? Here’s a quick rundown of the project:

Platform & Development

There are a few different methods being implemented by projects to create private transactions. Projects like Dash and PIVX leverage Tumblers/Coinjoin, which work by mixing funds with others by sending your coins to other people and then giving their coins to you. Projects like Monero and Sumokoin use Cryptonote/Ring Signatures, which works by proving someone signed the transaction from a group of people without revealing the specific individual from the group.

Zcoin instead works on the Zerocoin protocol by enforcing zero-knowledge proofs, which means that transactions are sent by burning the original coin and minting a new coin that’s not tied to any previous transactions, thus removing the possibility of using blockchain analysis to figure out who owns the coins. This ensures that no single transaction can be tied to an individual, as each coin is immediately removed from circulation right when it is utilized.

Zcoin currently uses a PoW algorithm that has a baked in founder’s reward element, which essentially means that with each new block found by miners, 20% of rewards would go to the Zcoin development team. This received a fair bit of scrutiny from the community, and the % has since been reduced in order to incentivize the creation of Znodes, which are nodes on the network that run a full copy of the blockchain and process the Zercoin transactions. It costs 1,000 Zcoins to run a node, which adds up to tens of thousands of dollars, and the current payout for running a Znode is 30% of block rewards.

It’s important to note that Zcoin is switching from the Lyra2z algorithm to a new MTP algorithm that works to even the playing field for those who do not have expensive ASIC and GPU hardware.

Looking forward to the Zcoin roadmap, you will find a number of interesting milestones. Perhaps most impactful will be the rollout of the Sigma Protocol. Currently, the use of the Zerocoin protocol requires a trusted setup phase where a developer must generate the initial parameters to launch the network. These parameters are subsequently burned by the developer, but this opens up the possibility of illicit activity as it gives the developer control to essentially print new coins if not properly burned.

Interestingly, the initial parameters that Zcoin leverages were developed back in 1991 during the RSA Factoring Challenge. While the Zcoin team can’t really use those to con the system, the whole thing is a bit messy. The Sigma Protocol essentially works to remove the trusted setup, and actually also reduces the size of the proofs stored on the blockchain, which should help with scaling over time.

Team

Zcoin boasts a strong development team, led by the young entrepreneur Poramin Insom. It’s interesting to note that Insom, a graduate of Johns Hopkins, was the first to implement the Zerocoin protocol based on the landmark paper from Aviel D. Rubin.

Token Financials

Zcoin (XZC) currently has a market cap of ~$170 million with a circulating supply of 4,459,624 XZC and a total supply of 21,400,000 XZC.

Final Take

Zcoin is being developed by some of the premier minds in the privacy-crypto space, and we anticipate that the innovations will continue to roll. Value creation for privacy projects will be a function of mainstream commercial adoption, and time will tell if Zcoin will be able to take the largest market share.

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Disclaimer: The author(s) of this article may have a position in one or more of the securities mentioned above. This article is for informational purposes only and should not be taken as investment advice. Always conduct your own due diligence before making investments.