Most ZCash and ZClassic Transactions Are Not Private
Recently, Bill Gates made the following statement: “The main feature of cryptocurrencies is their anonymity.” Today, we can already say that this is nonsense. Why?
Previously, we published an article about how Silk Road users are identified through the analysis of Bitcoin transactions on the blockchain. In reality, most cryptocurrencies are not as anonymous as the average user might think. The fact is, the blockchains of all coins are public, meaning they are open. As with Bitcoin, it is possible to conduct comprehensive transaction analysis to identify cryptocurrency users. By the way, Monero is different in this regard, as all transactions in its blockchain are private by default. However, other so-called “anonymous” coins — such as Zcash and Zclassic — are not as great as they claim and do not provide the promised confidentiality.
Zcash and Zclassic — What’s the Issue?
Both Zcash and Zclassic are designed to support private transactions using so-called “zero-knowledge proofs” — an interactive cryptographic protocol that allows one party (the verifier) to be convinced of the truth of a statement (usually mathematical) without receiving any other information from the other party (the prover). In Zcash and Zclassic, this protocol is called zk-SNARKS.
Making a private transaction, of course, requires much more computing power than a regular, transparent transaction recorded in the public ledger. To create an anonymous transaction, Zcash or Zclassic miners may need more than 40 seconds and over 3 gigabytes of RAM. Users of these cryptocurrencies report that not all private transactions are actually private, since this puts a heavy load on the network. As a result, Zcash and Zclassic blockchains simply cannot handle all anonymous transactions due to their growing number. Some Zcash wallets do not even support private transactions. Zcash developers hope to change this in the future.
About Zcash
Zcash was created in 2016 by Zerocoin Electric Coin. Developed as a fork of Bitcoin, the coin was heavily promoted as an anonymous and fast alternative to Bitcoin, which led to its popularity. The total supply is the same as Bitcoin — 21,000,000 coins.
In their blog, Zcash developers stated that they hope all transactions will be private in the future. The next update promises faster transaction processing, which may improve the currently dire situation.
Research Findings
According to research conducted by Alex Vikati and Edwin Ong, 85% of Zcash transactions are transparent, traceable, and public. Of the remaining 15% private transactions, only 7% are actually private.
As for Zclassic, the situation is similar — about 69% of transactions are public. Researchers found that only about 16% of transactions in the Zclassic blockchain are truly private, while about 15% are “private” (but have become transparent).
The researchers also discovered that, despite the overall increase in the number of transactions for both Zcash and Zclassic, the percentage of private transactions has decreased over the past year — from 32% in February 2017 to 11% in February 2018.
The recent hard fork of both Zclassic and Bitcoin, known as Bitcoin Private, also uses zk-SNARKS for private transactions. Bitcoin Private likely also has a majority of transparent transactions and suffers from the same issues as Zcash and Zclassic. Cryptocurrencies that use zk-SNARKS must rely on a trusted setup. With a trusted setup, the creators of cryptocurrencies like Zcash, Zclassic, and Bitcoin Private had to generate a master private key. Users of cryptocurrencies that use zk-SNARKS must trust that the coin developers are telling the truth when they say they destroyed the key. But who really knows?
Conclusion
Here is yet another reason to doubt the anonymity of cryptocurrencies. Another factor that points to the unreliability of these Z-coins is their rejection by various global dark markets. All of them use Monero. We recommend you do the same if the privacy of your cryptocurrency transactions is important to you.