The Ideal Payment Method of the Future.

18 min readJan 3, 2021

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original article in Russian

This article is intended for those who are already sufficiently familiar with the peculiarities of Zcash. This article focuses on the fear, which I will call “Investing in anonymous coins is too dangerous because they will all be banned.” This is the most popular fear, which is based on the false conclusion that all private coins can be used exclusively for criminal purposes, which means that sooner or later they will be subject to a total ban. I will try to explain why this conclusion is false, and what the Zcash developers are doing in order to maximally protect investors from similar development scenarios.

If I were asked to define Zcash, today I would formulate it like this:

Zc a sh is an innovative decentralized payment solution that uses a blockchain and advanced highly secure cryptographic protection methods. Zcash has a limited emission and economic model for bitcoin.

Where is the word “anonymous” or “private”?

And it is simply not needed!

After all, a means of payment already means that when paying for goods or services, you must be absolutely firmly convinced that, apart from two parties, the seller and the buyer, no one should know the amount of the transaction, and no one has the right to know about the amounts of money funds stored on the addresses themselves (in wallets) of the buyer and seller. That is why none of the cryptocurrencies with a transparent blockchain in the base layer, including the king of BTC, are suitable for the role of a means of payment, since any transaction using them can be correlated with the payer and recipient and put on public display. Actually, the current global payment systems are also not suitable for the role of an ideal means of payment, since there is also a third party that administers, analyzes, and sometimes censors your spending.

At the same time, Zcash is able and will compete in the future with these payment systems because it solves a very important and personal issue of human nature — the issue of privacy.

Zcash is one of the safest investments in the cryptocurrency world.

To begin with, it is worth noting that among the first investors in Zcash you will meet well-known early Bitcoin investors who greedily bought up the underlying cryptocurrency asset, while most people who were lucky enough to learn about Bitcoin in the early 2010s were afraid that sooner or later it banned and passed by. I think today, if you are reading this article, the thought that bitcoin can be banned is likely to make you smile.

I will name just a few well-known Bitcoin business angels who are early investors in the ZEC and have vast investment experience. These are the Buffets of our time. (You can find an almost complete list here — ).

Roger Ver .

No matter how you feel about him, he is a person who made a tremendous contribution to the popularization of bitcoin. I recommend reading about this in detail in the book “Digital Gold” by Nathaniel Popper — this excellent book is a detailed description of the first few years of the life of the main cryptocurrency. Today Roger is proud of his participation in the Zcash project and gives him the following assessment: “Zcash is strongest where Bitcoin is weakest; It gives users the easy ability to maintain their financial privacy. If anything can compete with Bitcoin, it will be on this front. “ (“Zcash is strongest where bitcoin is weakest; it gives users an easy way to maintain their financial privacy. If anything can compete with bitcoin, it is only on this front.”)

Barry Silbert.

One can only envy this person’s investment “taste”. He raised more than a dozen startups to their feet (the real account is already in the hundreds). Just so as not to overload the article, I recommend to google his name with the words “SecondMarket”, “Nasdaq”, “Grayscale” and “Digital Currency Group”. His last brainchild, in one way or another, participates in capital in most of the cryptocurrency “offices” that we know:

As for participation in Zcash, in addition to Barry’s personal capital, he invested two more parts in the subsidiaries of the Digital Currency Group and Shapeshift.

Cameron and Tyler Winklevoss .

It is impossible not to mention these outstanding people who, I’m not afraid to state this already, have taken bitcoin out of a venture investment to the rank of a highly risky, but still a mandatory and attractive asset for people who invest professionally. Despite the fact that these people are not on the official list of early investors, you can be sure they are watching him closely. However, they are not silent about their love for Zcash:

The Winklevoss are also promoting ZEC as a means of payment through partnerships of their Gemini exchange with acquiring services and the integration of necessary modules into payment terminals. More details here and here .

Not in words, but in deeds, Gemini prove and help Zcash acquire the status of a “handshake” asset. Thanks to their efforts, ZEC became the only private blockchain coin to receive a custodial and trading license from the NYDFS (New York City Department of Finance). The status of an asset in this body is issued after a thorough review for compliance with the requirements of US laws.

You can learn more about this story and the brothers’ attitude towards Zcash in the translation of the interview transcript on Peter McCormack’s show “What Bitcoin Did” .

I have listed all these extraordinary people in order to ask the question: Would they all invest in a project that has a high risk of being banned? Let everyone answer it for themselves, but, for example, the Winklevoss Brothers have expressed the opinion that US regulators are more loyal to Zcash than Monero . Actually, I do not know that any of these people publicly announced investments in other coins of confidentiality.

Zcash has a long term strategy

Developers of Zcash — professional cryptographers, mathematicians and programmers — implement all the necessary functionality in it in order for ZEC to become a generally accepted means of payment in the future. This goal setting is announced in a long-term roadmap.

Nathan Wilcox, CTO of Electric Coin Co (the organization that develops software for Zcash), presented his vision for Zcon1 in a Zcash report globally :

“Building a payment system that can scale to 10 billion users by 2050.”

At the same time, he identified as the main technical goals the provision of continuous improvement of the functionality of the transactional network, invisible to the user.

It sounds incredible and fantastic, but the development team looks ahead with great optimism and continues to show us how to achieve this goal. In order to realize the conceived, the mathematicians involved in the project are looking for solutions for scaling the network, and one of such solutions is the Halo series protocols. You can learn more about the general principles of their work in the official blog of Electric Coin Co:

- ECC Scaling Study: Research and Development Milestones in 2019 ;

- Halo: Recursive evidential composition without trust setting ;

- Explanation of Halo 2 .

Another area of network scaling is the use of hardware accelerated transaction authentication methods. You can read more about this research on the Zcash Fundation blog .

In addition to scalability, there are other directions for adapting Zcash to the requirements for a means of payment. For example, custom keys for viewing transactions of a private address. It is assumed that in a situation where the user of the shielded (protected) address will need to prove the transaction or the purity of the transaction, which it implies, he will be able to provide a user view key that will confirm his transaction at a specific address. This is a fairly useful feature that can be used by the user in disputable situations, but does not in any way weaken the user’s protection.

With the naked eye, you can see that the development team is constantly asking questions of various cases related to using Zcash as a means of payment:

“There is a tension between user needs and protocol limitations. For example, people need to be sure that their money was sent safely, faster than a block can be confirmed, or transactions canceled before they expire. We have created a UX that meets these needs by providing users with the right information and allowing cancellation on the device before transactions are sent online. “ — Joseph Van Geffen, Head of ECC Development.

Zcash is FATF compliant like no other cryptocurrency.

An unexpected statement, you might think. Well, let’s figure it out. To do this, consider the points of view of developers, regulators and independent experts in the field of financial law.

Developers’ position.

The position of the Zcash developers is unambiguous — the coin fully meets all the requirements arising from the FATF recommendations

I will quote their arguments.

In fact, given the ‘Rules of Travel’ requirement, Zcash is more compliant than most other virtual assets. Below, we’ll take a closer look at the specific issues mentioned in the FATF Recommendations and explain how Zcash is compatible with them and how Virtual Asset Service Providers (VASPs) can fulfill their AML / CFT obligations (note: AML stands for Anti- Money Laundering — Combating the Financing of Terrorism, CFT — Combating the Financing of Terrorism).

Recommendation — Customer Due Diligence (CDD)

According to the FATF guidelines, VASPs are required to take CDD measures when establishing business relationships. The fact that a VASP supports Zcash or that a client intends to trade Zcash does not affect the VASP’s ability to perform CDD checks. In this respect, Zcash is no different from other virtual currencies like Bitcoin or Ethereum, and VASPs can apply exactly the same CDD processes.

Guideline — Monitoring Transactions

Zcash privacy technology does not prevent VASP from tracking customer transactions within the VASP platform (e.g. deposits, withdrawals, trades) and comparing transaction patterns and volumes with expected behavior based on VASP’s understanding of the nature of the customer’s business (actions) (as determined through CDD audits) … VASP, as a direct party to its clients’ Zcash transactions (either as a recipient in the case of deposits, or as a sender in the case of withdrawals) can see the details of the transaction. This allows VASP to detect transaction patterns that do not match expected customer behavior and conduct further research to determine if unexpected behavior is suspicious. Zcash transactions require the use of billing addresses. This allows VASP to issue a unique deposit address to each client, which allows Zcash deposits to be uniquely attributed to a specific client. Zcash also requires customers to provide a billing address to receive withdrawals, allowing VASP to conduct sanctions checks or restrict withdrawals to whitelisted addresses. In this respect, Zcash is no different from other virtual currencies, and the same tools and procedures for monitoring transactions can be applied to Zcash.

Recommendation — Accounting, record keeping, office work

Just like VASPs can track a customer’s Zcash transactions, they can also keep a record of those transactions. For deposits, VASPs can record the customer’s identity, the Zcash deposit amount, the destination address (The deposit address generated by the VASP for that customer), the source address (where the customer deposits funds from the t-address), and the transaction ID. For withdrawals, VASPs may record the identity of the customer, the amount of Zcash withdrawn, the source address (i.e. the VASP address from which the coins are sent), the destination address (be it a t-address or a z-address), and a transaction ID. It is important to note that VASP always knows the billing address to which the Zcash withdrawal is sent. The only difference between Zcash and other virtual currencies in terms of information writable with VASP is that if a customer makes a deposit from a z-address, the VASP will not automatically see the original address. Optionally, VASP can ask the client for the source address for VASP records. However, this is not a requirement of the FATF Recommendations.

Best practice — Suspicious transaction reports

The ability to monitor transactions ensures that VASP is able to detect any suspicious activity from its clients. The ability to keep records of its clients’ transactions ensures that VASP has sufficient information to generate suspicious transaction reports where appropriate.

Recommendation — Travel Rule

Zcash was developed in accordance with the Travel Regulations. The required sender and recipient information can be attached directly to the secure transaction using an encrypted memo field. As the name suggests, the content of this field is encrypted when a transaction is added to the blockchain, which prevents inappropriate or unauthorized disclosure of personal information.

Source: How Zcash Complies With FATF Recommendations FATF Recommendations (ECC Blog Article) FATF Plans to Regulate Peer-to-Peer Transactions (ECC Blog Article)

This is not the only explanation from the developers, and in order not to overload the article, I will give two more links regarding the FATF recommendations, which you should definitely read. A small spoiler — FATF in general is concerned about the existence of any peer-to-peer transactional payment systems (that is, operating without the participation of VASP), it does not matter whether it is Bitcoin or Zcash, but ZEC has something that does not have BTС — read, this is interesting:

Position of the regulators

Just recently, the FATF has supplemented its recommendations with a number of aspects that directly refer to virtual assets with an increased level of confidentiality and highlight some of the ways they are used by signs of illegal operations that require increased attention from VASP:

FATF snippet


Signal indicators related to anonymity. 13. This set of indicators builds on the characteristics inherent in virtual assets associated with their underlying technology. Various technological features increase anonymity and add barriers to detecting criminal activity. These factors make virtual assets attractive to criminals who use them to disguise the storage of their funds. However, the mere presence of these signs in the activity by default does not imply an illegal transaction. For example, using hardware or paper wallets can be a legal way to protect virtual assets from theft. Again, the presence of these attributes should be seen in the context of other characteristics about the customer and their relationship, or illogical business behavior: * Customer transactions involving more than one type of virtual asset (VA) in the chain, despite the fact that additional transaction fees arise, and especially in cases where VAs are used with a higher anonymity characteristic (for example, privacy coins). * Moving virtual assets based on public transparent blockchains (such as #bitcoin) to a centralized exchange and then immediately exchanging them for privacy coins. “

So, the experts of the FATF group actually write that there are virtual assets, including anonymous ones. That the operations with them are legal by default, with the proviso that in case of suspicious actions aimed at obfuscating the traces of the movement of funds, a red flag appears for the exchange platform, in other words, increased attention and verification is required.

From these instructions, I assume that mixers and wallets specializing in the anonymization of coins with transparent blockchains will most likely be subject to regulatory tightening, since their use by default leads to an increase in the cost of operations, and at the same time, the only task of their use is just to obfuscate the tracks … In addition, there is a risk for users who own coins with a “bad” history in the form of blocking the accounts of these users, just because their assets were passed through the mixers earlier, even if they did not assume this when receiving (purchasing) them. Examples of such blocking have already happened before on large exchanges.

However, Zcash has built-in zk-SNARK protocol technology by default and its use implies absolutely no cost increase, so using z2z transactions does not make you a default criminal. This is how I interpret the latest FATF recommendations, but what do the experts think?

The position of specialists in the field of financial law.

On September 15, 2020, Perkins Coie, one of the most respected international law firms, founded in 1912, specializing in law in the technology industries, among whose clients Amazon, Google, Intel, Spotify, Facebook and Twitter, published an interesting report on the topic of cryptocurrencies with high confidentiality .

The summary of the multipage document is as follows:

Privacy cryptocurrencies, commonly known as privacy coins, are improved versions of early cryptocurrencies that were designed to protect the financial privacy of both individuals and businesses. Can regulated entities comply with anti-money laundering (AML) commitments supported by privacy coins? In our opinion, the answer is yes. This white paper is divided into four parts: · In Part 1, we discuss the importance and benefits of financial privacy for individuals and businesses, and how privacy coins address the identified weaknesses. · In Part 2, we explore several different privacy coins and the mechanisms that each uses to ensure privacy, encryption, and security. · In Part 3, we examine the approaches taken in the United States (federal and state), Japan, and the United Kingdom to regulate AML confidential coins, in addition to the recommendations outlined by the Financial Action Task Force. intergovernmental body. Finally, in Part 4, we explore the effectiveness of targeted AML regulation for VASPs and how the unique features of certain privacy coins help VASPs comply. We have concluded that privacy coins protect legitimate individual and commercial privacy interests and that existing financial regulations adequately address the AML issues that are privacy coins. Each privacy coin uses innovative mechanisms that provide privacy, encryption, and security to its users. However, along with their positive effects, these mechanisms have raised an important compliance issue:

On August 3, 2020, Peter Van Valkenburg, director of research at the Coin Center, a nonprofit organization dedicated to cryptocurrency regulatory policy, in a commentary to the Digital Currency Control Board at the National Bank and the Federal Savings Association of the United States, which he called “The Six Cryptocurrency Functions that should be allowed to national banks. “ wrote:

“Cryptocurrencies with enhanced privacy can use transaction mixing by default for all users (for example, Monero with ring multisignature transactions RingCT) or use the latest cryptography based on mathematically verifiable proof of the validity of the transaction, convincing participants that they are receiving bona fide funds, while not allowing third parties to collect any additional information about the transaction outside of this mathematical proof recorded on the blockchain (like Zcash) .28 While the initial naive reaction of financial professionals may be alarmed by these new improved privacy tools, in which they assume that they (these technologies) are incompatible with banking and other regulated institutions, in fact, the opposite is true. Banks have specific anti-money laundering responsibilities, and compliance with these obligations can be enforced using these privacy-enhancing cryptocurrency technologies to protect the privacy of these institutions’ clients. In fact, the use of privacy-enhancing technologies may be the only optimal way to fulfill the obligations of banks, both to their customers and to government agencies.

I cannot but agree with Peter on this point.

Speaking about the research of specialists, it is also worth mentioning the report of the audit company Rand Corporation , published in May 2020, the main conclusion of which was the thesis that currently Zcash is practically not used for transactions on the darknet.

Zcash has advanced satoshinomics.

This is where I started this article. Why do I think Zcash is the ideal tender standard? Why not bitcoin?

If we open the original Bitcoin White Paper, it is quite clear that Satoshi was describing a decentralized peer-to-peer payment system in which transactions should be used for e-commerce, i.e. to pay for goods and services.

For a sustainable Bitcoin economy, in my opinion, it is not enough to simply be in the status of digital gold — a kind of highly liquid protective asset. It is critically important that Bitcoin is actively used precisely as a means of payment. I will try to explain this position. Currently, bitcoin has the most attack-resistant network (read — a network that does not make economic sense to attack), the hash rate of which is orders of magnitude higher than the hash rate of any of the altcoins. This happened due to two spontaneous trends: the first is the rise in the price of bitcoin, which attracted more and more miners, the second trend is the technological race of manufacturers of integrated circuits for mining. Taken together, all of this has generated tremendous interest in bitcoin mining and increased the power of the network to what we are seeing.

But will this process develop further? Will stagnation start? The debate on this matter has been going on for several years, but the fact remains that the emission will eventually dry up. In theory, Bitcoin supporters are confident that this is not a problem, because the economic interest for miners will provide commissions from transactions made, which will increase their share and compensate for the decrease in the block reward. And this is where the main dilemma arises — is the status of digital gold alone enough for the volume of commissions to be comparable to the income from awards received earlier. Currently, commissions on the bitcoin network bring an average of addition to the issue reward. Whether it is a lot or a little, and what will happen next is an open question.

Of course, there are actually several variables in this equation — the feasibility of mining in the absence of an emission reward will be influenced not only by the number of transactions, but also by the level of the average commission, and the price of the coin itself .. but still no one will deny that the more transactions there will be , the lower the commissions set by miners will be. Market mechanisms of self-regulation will fuel all this, for which we love bitcoin. And here, developing my hypothesis that in the future to provide a sufficient amount of commissions, bitcoin needs to become a means of payment, I return to the thought outlined at the beginning of the article: in order to be a means of payment, cryptocurrency must get rid of the public blockchain. Otherwise, any verified payer and recipient of funds is extremely vulnerable to malicious third parties. In this case, I don’t even mean verification on some conditional exchange, because verification occurs at the time of payment for a product or service, since the customer and the contractor know about each other directly by contacting.

Zcash, having received a working economic model from Bitcoin, additionally solves the issue of ensuring the protection of the parties to the transaction, keeping their current balances and data on past transactions secret from other people.

Price question

Of course, most investors are most concerned about the cost of the coins they invest in. And even after reading all this material, anyone can parry me: “dude, this is all cool, but the coin has been falling against the dollar since the beginning of 2018, and by the first two coins it has rolled under the plinth! Why should I invest my hard earned money in this? “

Reasonable, but I’m not encouraging you to invest in something that you are not sure of. There are a lot of pyramid-like projects, the price of coins of which gives several thousand percent in a very short time. In my case, on the contrary, such schemes do not cause absolutely any confidence, since their life cycle, as well as success, is very limited in time and in the end only early investors earn money on them, while the rest do not have time to get away at the moment of the bubble collapse.

As for the long-term decline in ZEC, it is justified by the evolutionary processes that took place in the coin, in particular, the rapid technological improvement of mining devices, which significantly reduced the cost of “production” of one coin, and not at all by the collapse of the project as many, many rushed to write.

Zcash is an extremely long-term project, the goals of which are so ambitious that it will take more than a decade to implement them. However, this does not mean that the investor will have to wait tens of years in order to earn at least something. The price of an asset, regardless of the type of market, is formed through the balance of supply and demand. And from this point of view, with Zcash, we get a model, the obvious profitability of which has already been proven in practice. Yes, yes, it has already been proven on the example of bitcoin. The supply of Zcash on the market will be halved every 4 years — and this is the dogma laid down by the emission algorithm. The number of coins is limited to the same volume as that of the progenitor. On the contrary, demand will increase as technology adapts to the payment system and more and more people are involved in the process.

One day ZEC will become known all over the world as well as bitcoin. And a little later, the letter Z for every person in the world will cause the association not of a fictional character Zorro, but of the most liquid means of payment in the world, Zcash. I am sure about that! PS Since the author of this article has been a Zcash maximalist for more than three years, getting imbued with the ZEC philosophy, I managed to deeply study the aspects of the economic justification for the existence of this coin. If you have any fears or questions about ZEC, you can share them in the comments, I will try to answer.

My ZEC address:


On Twitter @ RuZcash