Bitcoin is by far the most recognized and widely used digital currency. It was introduced in January 2009 and has garnered much attention since then. But it is not the only one of its kind. Wikipedia lists nearly one hundred cryptocurrencies boasting more than 1 million US dollar market capitalisation.
One of the newest cryptocurrencies is “Zcash,” which can be seen as an update to the Bitcoin protocols. In Bitcoin, the transfer of coins is recorded in a global ledger, the so-called blockchain. The validity of the latest transfers in the blockchain is verified about every ten minutes. Verifying the transfers and creating new blocks for the blockchain (the so-called mining) requires a lot of computing power, which is provided by distributed computers worldwide. The “miners” who allocate the processing power are rewarded with new coins.
Zcash is trying to resolve two main shortcomings of Bitcoin: its lack of privacy for transactions and the centralization of transaction verification into the hands of a mere dozen miners who have invested in large amounts of specialized mining hardware: Bitcoin is prone to such centralization because the computational load of the bitcoin mining algorithm can be split into many different small tasks, which can be conducted in parallel. The algorithm is easy to implement in dedicated, energy-efficient and cheap microchips, but not suited to standard hardware. Bitcoin mining today is therefore done on special-purpose supercomputers which are located in places with cheap electricity and/or cheap cooling. Such supercomputers are expensive, costing millions of euros, but provide much more mining power than if one were to use standard PC hardware of the same price.