Zcoin v ZenCash

Zcoin v ZenCash

Disclosure: I have bought and intend in the future to buy both Zcoin and ZenCash.

For people who are interested in a fungible and private blockchain, like yours truly, Zcoin and ZenCash are two cryptocurrencies on the market that both promise privacy. Zcoin is based on the Zerocoin protocol, originally conceived as a method of introducing privacy into Bitcoin, and follows Bitcoin in many ways such as inflation and number of coins. ZenCash on the other hand follows zkSNARKs, a cutting edge cryptographic protocol.

Zcoin and ZenCash have similarities. For example, both are designed to sever any trail between sender and receiver, so as to create truly private transactions. They both also have the establishment of incentivised nodes backed by holders' staked coins in their roadmaps. They also both have a maximum total supply of 21 million, same as Bitcoin.

The fundamental difference between Zcoin and ZenCash is that whereas Zcoin only hides the trail between sender and recipient, but not the amount sent, ZenCash hides both the sender address, receiver address and amount sent. Hiding the amount of transactions is one of the fundamental innovations of zkSNARKs.

In terms of funding models, both coins have models that incentivise developers to act in ways that maximise the coin's value. For Zcoin 20% of the reward for all blocks mined goes to the developers in the first four years, and thereafter 10% of the reward. ZenCash allocates 88% of the block reward to miners. The remaining 12% is shared 8.5% for the DAO and core team to fund development, outreach, and partnerships, and 3.5% is reserved for secure nodes.

I suppose it remains to be seen which funding model will be more successful in driving community growth and coin value appreciation. The 20% dedicated to developers in Zcoin does not technically have to be spent by them on development - theoretically there would be nothing to stop them just keeping it. In practice of course it's presently in the Zcoin developers' interests to spend on development.

ZenCash reserves 8.5% for DAO and development, including a smaller developers' reward, so clearly there are dedicated funds earmarked to develop and promote ZenCash and the ZenCash community. When I compare the funding models, to me ZenCash is probably more predictable over time. Zcoin developers with their 20% coffer - potentially twice that, if you look at the hack that occurred on Zcoin which will be discussed below - have a huge incentive to pump up the price of Zcoin certainly during the first four years from foundation. Almost certainly they'll use portions of their block reward to fund this.

ZenCash is reserving 8.5% for DAO and development, including smaller developers' share, but this amount is remaining constant over time. This gives ZenCash predictable development funding beyond the four years from foundation time period, after which for Zcoin developers' their share will be cut in half. In practice, I believe that the developers' 20% reward in Zcoin will likely promote price pumps over the early stages of Zcoin's rollout and up to four years, and is more unclear beyond four years. This could be great for short term traders, if they can ride the wave up.

ZenCash with a set-aside consistent total of 8.5% - a portion of which will go to reward developers - may offer better incentives for longer term development. This could lead to greater price stability.

Now I want to discuss a major drawback in each of Zcoin and ZenCash.

To begin with, a few months ago Zcoin was hacked and coins created "out of thin air" to the amount of approximately 20% of the then marketcap of the coin. The evidence I have is only inferential, circumstantial and based on what I think is most likely, not what I think is clearly established. But my conclusion was the Zcoin hack was an inside job. I have posted to Reddit about this here: https://www.reddit.com/r/CryptoCurrency/comments/6379u9/zcoin_bug_a_deliberate_inside_job

If others do not think the possibility one or more members of the development team of a coin hacking their own coin for profit is a drawback, they are quite entitled to their view - I am not known for my charitableness, and view it as the major drawback with Zcoin.

Now ZenCash's major drawback arises from its design and its major strength, its zkSNARKs protocol. This protocol shields not only sender and recipient addresses, but also amount transferred. This creates challenges in auditing the private coin supply if a major bug were to be discovered. If it were this could lead to a hacking effort creating coins. This theoretical weakness in ZenCash's source code - which derives from Zcash - is unsurprisingly played up by Zcoin developers, who emphasise it in their YouTube videos and elsewhere. An advantage with ZenCash is its source code has undergone expensive and in-depth auditing, particularly on aspects of its code that innovate from Bitcoin's now nine year proven codebase and therefore need auditing http://www.coindesk.com/auditing-zcash-anonymous-blockchain-spent-250k-trial-fire .

Also, there is suggestion from developers of the source code that the claims of a problem with auditability are exaggerated. https://forum.z.cash/t/how-can-the-chain-be-audited-if-it-is-all-encrytped/1626/11

Nonetheless, this is a drawback to ZenCash that I as an investor of ZenCash think is important to be aware of.

Now which of these coins would I buy, and which do I have more confidence in going forward? Actually, at this point I have bought, and most likely will again buy, both. I definitely trust ZenCash's developers more than Zcoin's, but that is because I don't fully trust Zcoin's developers. This is because of the hack. Nonetheless, in the short term, I clearly see how my interests, as a Zcoin holder, and the developers' interests, receiving 20% of the block reward, coincide. In the short term they want the price to rise, I do too, and Zcoin while it has risen substantially has still underperformed the market in the last few months at the time of writing. I see upside scope for Zcoin.

In the case of ZenCash, I view it as a safer longer term proposition. This is because I trust the developers and I believe the block reward sharing model provides appropriate incentive for community development and growth. It is also at present very cheap, and in my view that reduces the potential downside risks.

Of course you are in Crypto so you must make your own decisions based on all the information you can gather from the sources you can find. Good luck.