The main Zcash “Privacy Coin” is ready for growth after placing on Ethereum

Just as bitcoin performed this year, which saw its price rise by 88%, it is far from the most profitable cryptocurrency since the beginning of the year. One that has had an even better year is zcash, a leading privacy coin that shares many core elements of bitcoin’s value proposition, including its 21 million unit cap. (Privacy coins run on blockchain like bitcoin but take additional steps to protect user identities and transaction amounts.)

In fact, zcash has actually returned 105% to investors as of January 1, 2020.

Plus, zcash just got a major boost. Through a process known as “wrapping”, a synthetic version of zcash is now available on Ethereum compatible with all of its major wallets and applications. This means that zcash is much more widely available than it was a few weeks ago.

Chris Burniske, a partner at venture capital firm Placeholder VC, told me this news was “surprising”. He went on to say that “Zcash is the best privacy cryptocurrency out there with an institutional-level team … When you think of a cryptocurrency like this with a logarithmic supply curve that converges on 21 million units, we know which one. it will be the supply over time. The variable is exactly what the demand will be. Wrapping zcash in this way opens up more possibilities for people to use and claim it. We anticipate that zcash will be a store of value for basic privacy. ”

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How does it work

Holders can “wrap up” their zcash through a partnership between the Anchorage Qualified Keeper and Tokensoft tokenization platform called Wrapped. For each deposited zcash, they receive a “wrapped zcash” which can be stored in any Ethereum wallet.

This process is facilitated by a new implementation of Tokensoft’s ERC-1404 standard model contract for the creation of Ethereum compliant tokens compliant with regulations. It is interoperable with the more familiar ERC-20 standard. However, it comes with some additional protections that should make wrapped zcash more palatable to regulators, who have had doubts about the potential illicit uses of privacy coins like zcash.

Speaking about the benefits of using this new token standard, Tokensoft CEO Mason Borda told me that “The ability to freeze or revoke a token is critical. The ability to have the contract holder operate out of the cold room was very important. Having an administrator for daily use also makes it a little more usable and secure at the same time. “

Speaking further about how Wrapped will maintain regulatory compliance, especially if someone buys packaged zcash on ethereum and tries to redeem it for the core asset in order to cloud their financial assets, Anchorage co-founder and president Diogo Monica said that “We do AML / KYC for every single customer, not just for the entities but also for every single user. There is no way for you to interact with the packaging or gauge of zcash in a way that we don’t know and that will prevent us from meet our regulatory obligations “.

Why Wrap Zcash?

Zcash is an appropriate choice to transfer to Ethereum. First, given many of its bitcoin-like properties, zcash’s core value proposition is a store of value. This fact alone means that zcash is set to benefit from any development, such as adding liquidity to Ethereum, which will reduce friction when it comes to accessing and trading the asset.

Second, its networking fundamentals remain solid.

• According to Coinmetrics, the number of active addresses has increased by almost 350% since mid-July (9,556-36,210)
• The hashrate also increased by 35% to an approximate rate of 5.52 Ghash / s
• Finally, the daily average transfer value and the total number of transactions also increased this year

Third, and perhaps most importantly, Zcash is expected to undergo his first “halving” around 18 November. Halvings, which reduce the amount of cryptocurrency created in each block by 50%, tend to be extremely bullish events for cryptocurrencies. For bitcoin, the halvings of 2012 and 2016 led to 9,000% and 3,000% appreciation, respectively.

Since zcash was created in 2016, it is nearing its first halving. When this occurs, block rewards will be reduced by 50% from 6.25 ZEC to 3.125 ZEC.

They will come?

It will be interesting to see how much zcash will be carried over to Ethereum and the level of adoption it will receive from various decentralized finance (DeFi) applications. With a total of 13,000 units, the “wrapped zcash” represents 0.001% of the total outstanding supply. So we start from a very low base. But they all start somewhere.

For some context, the amount of bitcoin wrapped on Ethereum was negligible until mid-summer, but due to the DeFi craze over the summer +143,000 (worth $ 1.86 billion) bitcoin was transferred to Ethereum.

The questions remain

The timing of this launch may seem curious to some observers who have seen much of the foam of DeFi applications burn. However, if you look under the hood, many supporters remain bullish. The fact that more than $ 11 billion get stuck in various DeFi protocols despite the takeover increases their resolve. In fact, downtime is often when builders do their most work.

That said, assuming wrapped zcash (or another wrapped asset – which is on its way) takes off, it will lead to more difficult questions, as if it will be priced to the same extent as the base asset. The wrapping process will cause zcash wrapped to lose some of its privacy enhancing features. However, many investors and enthusiasts are fearless. For example, Paul Varadittaki, partner of Pantera Capital, told me that while “wrapped zcash will have some element of not being completely anonymous like traditional zcash, it will ultimately serve its use case well of gaining more utility, resource diversification and zcash awareness “.

Finally, the DeFi craze over the summer has led to substantial congestion on Ethereum, which could only be exacerbated if we see that even more assets will be placed on Ethereum. One of the main value propositions for making these assets compatible with Ethereum is reducing friction and adding liquidity. If Ethereum’s transaction fees approach or exceed the record fees we saw over the summer, which averaged $ 14 per transaction, that could become unsustainable.

Of course, Ethereum is undergoing a major upgrade that could substantially increase throughput to 100,000 transactions per second from its current level of <20. On the other hand, the answer may be that some of these transaction requests extend to Level 1 protocols such as Tezos, Polkadot, Near, Tron, Solana, etc.

Forbes will cover some of these questions in more detail in future posts.

This story originally appeared in our premium newsletter, Forbes CryptoAsset and Blockchain Advisor. Click here to register now.