Privacy coins have features that allow users to hide certain aspects of their transactions on a blockchain network.
While there are quite a good number of privacy coins, Monero [XMR] and ZCash [ZEC] are the two prominent ones in the market right now. Both excel at the technology level and command a good level of adoption in the crypto ecosystem.
In this article, we attempt to compare both privacy coins, particularly the nature of their blockchains, their modes and levels of privacy, their mining protocols and their security.
A quick look at each privacy coin.
Introduction to ZCash [ZEC]
ZCash was introduced through a hardfork of the bitcoin blockchain in 2016 as a form of bitcoin with anonymity features. As a fork of Bitcoin it has some similarities with its parent blockchain including its Proof-of-Work consensus algorithm but uses equihash hashing algorithm. It also has a fixed coin supply of 21 million coins like BTC.
ZCash Privacy Technology
ZCash privacy protocol is based on the implementation of the ZK-SNARK technology especially in its prominent feature, zero-knowledge proofs. ZK-SNARK, short for Zero-knowledge Succinct Non-interactive Argument of Knowledge, is a cryptography technology that allows parties to verify a transaction is accurate without having to reveal its content.
Unlike in bitcoin blockchain where transactions are transparent, ZK-SNARK allows users to shield their transactions from the rest of the network. To do this, users send transactions from one z-address—starting with “z”—to another z address. For transparent transactions, just like in bitcoin, users transact using t-addresses which start with a “t”.
Some notable traditions peculiar to the ZCash ecosystem includes the “trusted setup”, where the participants purged the network of so-called “toxic waste” and the “Founders fund” which gives 10 percent of the total minable coins to founders and R&D.
Introduction to Monero [XMR]
Monero was introduced by forking Bytecoin in 2014. Just like its parent blockchain, Monero is based on CryptoNote technology which is designed for anonymous cash settlement. It uses a proof-of-work consensus protocol and CryptoNight hashing algorithm.
Monero Privacy Technology
For its privacy protocol, Monero uses “Ring signatures”, “Ring CT”, and “Stealth Addresses”.
Stealth addresses as the name implies are used to hide the identity of the recipient in a Monero transaction. These one-time addresses are created by a sender based on the address given by the receiver and making the transaction details visible only to the receiver.
Ring signatures are used to mask the address of the sender in a Monero transaction. In simple terms, it gathers signatures from multiple parties for the transaction making it almost impossible to identify the real sender. The process known as “mixin” makes it appear that several sources were used to send a transaction whereas only one is actually spent.
Ring CT, short for Ring Confidential Transactions, uses cryptography to hide the actual value of a transaction.
Privacy on Monero versus Privacy on ZCash
The major difference between the privacy on the Monero network and the ZCash network is that transactions on the XMR is anonymous by default whereas on the ZCash network it is optional. When utilized, both technologies—ZK-SNARKS for ZCash and Ring Signature/Stealth addresses/RingCT for Monero—have been proven to serve the purpose of keeping transactions anonymous.
Like we explained earlier, users on the ZCash network have to use z-addresses to make their transactions private otherwise they remain open to other users. Due to this, some users may willingly or inadvertently expose their transactions. Recent data show that less than 15% of all ZCash transactions use these shielded addresses.
One the Monero network, however, all transactions remain private by default and users can only choose the level of “mixin”. Basically, all transactions on the Monero network look alike.
Decentralization on Monero and ZCash Networks
Decentralization remains a major tenet in cryptocurrency space, moreso among privacy proponents. While both networks favor decentralization, Monero makes more active effort to prevent centralization that could result from the use of ASICs on the network.
Application Specific Integrated Circuit (ASIC) miners mine cryptocurrency much more efficiently but can also lead to control of the network by a few large mining farms or mining pools controlled by ASIC manufacturers like Bitmain.
Monero developers are willing to upgrade (or hardfork) the network to discourage these ASICs from their networks—and they have this with their CryptoNight upgrade. The idea is to have the more of the hashing input from regular users using GPU mining rigs.
ZCash, on the other hand, has done little to dissuade ASIC miners like the Equihash Antminer Z9 developed by Bitmain specifically for ZCash’s hashing algorithm.
Verdict: Monero [XMR] or ZCash [ZEC]?
Firstly and importantly, both privacy-focused coins currently perform their function of keeping transactions and transactors anonymous. Both are dreaded by law enforcement authorities for this very reason. However, some concerns with the ZCash [ZEC] protocol slightly tips the balance in favor of Monero [XMR].
Concerns about ZCash
Like we noted earlier, privacy on the ZCash protocol is optional. The downside to this is that although private transactions remain hidden, they could be labeled suspicious because they are hidden. This becomes worrisome if the number of hidden transactions on the network stays low—the percentage stands at around 13% now.
The Founders fund which sees a few persons get the better of 10 percent of all ZEC mined has also be called into question. How would these “Founders” be incentivized to stay on the network after all ZECs are mined? What will stop them from liquidating the ZEC and walking away?
There’s also the “little” threat of centralization from ASICs.
Monero has been in the privacy game longer than ZCash and a resultant gap in maturity seems to show. The Moreno community seems more driven by the ethos of privacy above profitability. Monero recently added the “Kovri I2P” Protocol and “Bullet proofs” to further boost security and efficiency on the network. It also increased its mixin level for 4 to 6.
But make no mistake, ZCash stands right there with Monero when it comes to adoption, scalability and of course privacy.