We read recently that bitcoin, the internet money, has gained a competitor.
Zcash, a digital currency that, like bitcoin, records payments on a public ledger but, unlike bitcoin, touts its ability to preserve fully the anonymity of users, launched Oct. 28.
The news sent us in search of information about cryptocurrencies, which have as their hallmark the absence of some authority, such as a government, that issues and regulates them, as well as vouches for their validity. That decentralization marks a departure from a world in which a sovereign confers upon money its legitimacy and highlights what the sociologist Nigel Dodd terms the “fiction” of money.
Zcash Begins: https://t.co/hrLDjgGDVQ
— Electric Coin Co. (@ElectricCoinCo) October 28, 2016
“Money’s great, sweeping historical associations – with gold and with states, for example – are inessential,” Dodd writes in “The Social Life of Money,” which he published in 2014. “It can exist without them, as much as their structures linger. That is to say, money is not necessarily a creature of the state.” (emphasis in original)
Rather than rely on a central bank to vouch for money, cryptocurrencies use a ledger – a digital file that tracks transactions – that is distributed across a network of private computers world-wide. Instead of printing or minting money, Zcash, bitcoin and their rivals are mined, which means that anyone who has a computer can use it to do the math that unlocks new units. That power might come from a computer lying around your home or a data center. (Or a data center that you install in your home.)
Both Zcash and bitcoin have fixed their supplies at 21 million units. Mining new units is harder than it sounds. After nearly seven years, three-fourths of the supply of bitcoins has been mined. Of course, you also can buy the coins, either at an exchange, or from someone directly. You can use the currencies to pay for things ranging from pizza to plane tickets, which is to say many of the things you buy with most forms of money.
The cryptographers who created Zcash will collect 10% of the zecs (as units of Zcash are known) mined. The approach, the company says, will incentivize the creators to invest their labor and know-how over the years needed for the currency to find its footing.
Zcash hopes to sell its technology to financial institutions, which may want ledgers that hide information such as trading strategies or the identities of customers. “Banks and their customers absolutely require privacy in their financial transactions,” Zooko Wilcox, one of the currency’s creators, wrote in a blog post last January. The financial technology industry has “assumed all along that their ‘blockchain technology’ product comes with privacy, and it doesn’t.”
Wilcox is referring to bitcoin, which is not fully anonymous. Transactions recorded on the ledger remain on the ledger. So by marrying details about a transaction with the identity of a buyer of goods or services, for example, transactions can become traceable.
Zcash achieves anonymity through a form of cryptography known as zero knowledge proofs, which, according to its creators, “allow you to prove knowledge of some facts about hidden information without revealing that information.” The currency encrypts such information as the identities of the sender and recipient, as well as the amount of payments.
You can opt out of the privacy protection. Of course, if you worry less about privacy, you can pay with bitcoin. Or with a credit card.
The anonymity Zcash promises seems likely to draw scrutiny from regulators. “Bad guys use cars, bad guys use the Internet, bad guys use cash, bad guys use the current banking system,” the creators write. “Our goal is not to invent something that bad guys can’t use, it is to invent something that can empower and uplift the billions of good people on this planet.”