There’s a common misconception that cryptocurrencies like Bitcoin are anonymous. However, this is not the case at all. Instead, they are pseudonymous. This means that although people don’t see the actions of a certain person, they can see the actions of a certain public wallet address. If a connection can be made between a public address and a person, privacy is lost.
Let’s say you’re going to pay your friend in BTC. You’ll ask him for his public wallet address to make the transfer. However, now that you know his address, you have full access to his transaction history. You can use websites called ‘block explorers’ to see transactions, balances, and actions of wallets. These block explorers exist for pretty much every blockchain.
This is great for transparency, but what if you’re someone who doesn’t want people to see where you’re sending money, how much you have, and what you’re doing with it? What if you value privacy over transparency?
Introducing Zcash, the second most popular privacy coin
Zcash is a decentralized cryptocurrency focused on giving users the utmost privacy. It uses a type of cryptography called zero-knowledge proofs. This allows nodes on the network to verify transactions without revealing any sensitive information about those transactions. Note that, unlike other privacy coins, Zcash’s privacy features are optional, meaning users can select whether a transaction is anonymous or public.
What are Zero-knowledge proofs?
Zero-knowledge proofs are a type of cryptography that allows something to be proven without actually revealing the information that proves it.
The types of ZEC transactions
Zcash offers both transparent and private transactions. For those that are transparent, the transaction occurs pretty much the same as with Bitcoin. Funds are sent between two addresses and recorded on the blockchain. All the key information about the transactions, including the address involved amount sent, are recorded and available online for anyone to see.
Private transactions on the other hand work slightly differently. They use zero-knowledge proof technology to allow completely anonymous transactions to be sent over the blockchain. The fact that the transaction happened is recorded but details like addresses involved, and amounts sent are not revealed to the public. Zero-knowledge basically allows us to be certain a transaction happened, but omit the details.
