Written by: Michael Zhao, Grayscale Research
Compiled by: Luffy, Foresight News
Privacy is not a niche add-on feature of money; it is a critical component for money to function properly. People do not want every transaction, account balance, and financial relationship to be publicly exposed. Physical cash possesses this property. Historically, the financial system relying on intermediaries (banks) also maintained a certain degree of practical confidentiality, restricting third parties from arbitrarily accessing financial records, though information leakage remained possible. Even law enforcement agencies typically need a court order to access an individual's financial data.
Technological and social changes exert pressure on this system, often sparking public discourse on financial privacy and new methods to protect it. In the 1970s, the digitization of financial records and the enactment of the Bank Secrecy Act brought more attention to financial privacy. Similarly, in the late 1990s and early 2000s, the proliferation of the internet and online banking, along with the passage of the Patriot Act, once again made financial privacy a focal point, driving the widespread adoption of tools like encryption technology and two-factor authentication.
Chart 1: Technological changes may increase public focus on financial privacy
Grayscale Research believes we are on the eve of a third wave of heightened public attention to financial privacy, driven by the adoption of stablecoins and various blockchain applications, as well as new financial surveillance methods enabled by artificial intelligence. Multiple high-frequency indicators show that public concern for this issue is already on the rise.
Chart 2: Recent focus on financial privacy has increased
This is the context in which Zcash emerges. Zcash is a decentralized digital currency, with underlying logic similar to Bitcoin but equipped with mature privacy mechanisms. Bitcoin achieved digital scarcity but failed to achieve digital privacy. Its transparency ensures auditability but sacrifices monetary use cases that require confidentiality. If crypto users ultimately view private digital currency as a need distinct from transparent digital assets, Zcash could capture that market segment. ZEC's current market capitalization is only about 0.4% of the total crypto market cap, undervalued relative to its technical strength and the potential market for private digital currency.
Privacy is Becoming an Independent Product Category
On public blockchains, account balances, counterparties, and transaction history are permanently visible to the public. Even when users employ anonymous addresses, their activities can often be gradually linked and reconstructed through exchanges, counterparties, wallet behavior, and on-chain analysis tools. In reality, public blockchains often leak more information than users anticipate.
However, the vast majority of users need some degree of financial privacy. Individuals do not want their account balances or spending records to be public by default; businesses want to keep supplier information, salary payments, treasury fund flows, and customer dealings confidential; institutions also do not want their wallet structures and transaction patterns to be tracked and mapped in real-time.
Therefore, the need for privacy does not come solely from those pursuing complete anonymity; it's more often a common demand for confidentiality inherent in economic activities.
But within the crypto industry, the privacy sector has long faced a major challenge: high distribution and adoption barriers. Strong privacy protection introduces additional friction for exchange support, wallet integration, and market access. So privacy in crypto is not just a technical feature; it also involves trade-offs at the commercial level.
Several Paths to Achieving On-Chain Privacy
Different crypto privacy systems aim to conceal different types of information. Some solutions merely make transaction flows on transparent ledgers harder to trace, while others directly hide key transaction fields.
- Mixing-based Privacy Solutions: Operate on top of public blockchains like Bitcoin, such as CoinJoin, Bitcoin Cash's CashFusion, and Dash's PrivateSend. They only increase the difficulty of transaction traceability; the underlying ledger remains fully public.
- Confidential Transaction Systems: Such as Litecoin's MWEB, can hide transaction amounts, achieving basic structural privacy, but still differ from systems that completely shield transactions.
- Default-Privacy Public Blockchains: Represented by Monero (XMR), where privacy is enabled by default, requiring no manual user action to activate.
- Shielded Transaction Systems: Represented by Zcash, which validates transaction validity without revealing the sender, receiver, or transaction amount to the public.
Within the privacy sector, Zcash occupies a unique position. It is an underlying public blockchain with optional privacy, where shielded transactions can hide the sender, receiver, and amount at the transaction layer. This is fundamentally different from privacy add-on layers built on top of transparent public blockchains.
Chart 3: Transaction privacy varies across different cryptocurrencies
What is Zcash and How Does it Work?
Zcash is a public blockchain for peer-to-peer value transfer, with a maximum supply of 21 million tokens, using a Proof-of-Work (PoW) security model—sharing many characteristics with Bitcoin. The core difference is that users can choose to initiate shielded transactions, rather than defaulting to revealing all transaction details publicly.
The Zcash network supports two types of transactions:
- Transparent Transactions: Fully visible on-chain, following the same logic as Bitcoin transfers.
- Shielded Transactions: Can validate transaction legitimacy without revealing the sender, receiver, or transaction amount to the public.
Simply put, Zcash achieves transaction validation without full public disclosure.
Zcash uses zero-knowledge proof technology to build a shielded pool of funds. As long as funds remain within the shielded pool, on-chain information leakage can be minimized. Zero-knowledge proofs are a type of advanced cryptography that can be used in the blockchain field for both privacy protection and scalability.
Zcash also supports selective disclosure. Using a viewing key, users can grant designated third parties permission to view details of shielded transactions when necessary. Shielded transactions are not completely black boxes; they remain private from the public while still allowing users controlled disclosure when needed.
Zcash Development History: An Old Protocol, A New Chapter
Launched in 2016, Zcash is considered an established project by crypto industry timelines and can easily be mistaken as a relic from a previous cycle. However, from its inception, its goal was not merely to implement privacy. The project's original intent was to truly apply zero-knowledge cryptography to a digital cash system.
Its core concept was groundbreaking at the time: adopt Bitcoin's monetary model while implementing private transactions at the protocol level on a public blockchain. Zcash was one of the earliest projects to build private digital cash as an underlying public chain, not just as a wallet feature or an upper-layer privacy add-on.
Early on, however, the technical vision outpaced supporting product infrastructure. Early shielded transactions were computationally expensive, offering a far inferior user experience compared to transparent transactions. Several major upgrades gradually alleviated this issue:
- Sapling (2018): Significantly reduced proof generation time and memory usage, making shielded transactions practically usable. Generating a shielded transaction took only seconds, with memory usage as low as 40MB, directly driving an increase in usage.
- Orchard / NU5 (2022): Upgraded the cryptographic foundation, introducing the Orchard shielded protocol and Halo2. The new shielded pool no longer requires a trusted setup.
- Ironwood (2026): Fixed a vulnerability in the Orchard circuit, built a new shielded pool, eliminated the theoretical risk of token counterfeiting, and ensured the integrity of the token supply.
- Unified Addresses and Wallet Optimization: Simplified the interaction process, allowing users to handle both transparent and shielded receiving addresses without dealing with multiple address formats.
Zcash aims to solve not just "whether private transfers are possible," but how to use private transfers on a large scale and conveniently. Years of effort to reduce usage friction are now beginning to show results.
The wallet layer is a key piece. Zodl (formerly Zashi) positions itself not just as an asset storage tool but as the primary interface for interacting in shielded mode. The product includes built-in exchange functions based on NEAR Intents, CrossPay for cross-asset transfers, and supports cold storage for shielded balances.
The value of these features lies in reducing the steps where users are forced to leave the shielded funds pool. Whether depositing, paying, or exchanging for other assets, operations can ideally form a closed loop within the encrypted environment.
Historically, Zcash's biggest bottleneck was never whether private transaction technology was feasible, but whether users could remain in a secure state throughout the entire transaction process.
Zcash ecosystem infrastructure is also gradually maturing. Leading mining pool Foundry announced in April 2026 the launch of a US-based Zcash mining pool for institutional and listed company miners. This does not directly increase shielded wallet users but signifies ecosystem maturity: more industrial-grade support increases institutional awareness of this public chain.
Additionally, fine-tuning of policies related to transaction fees and the mempool alleviates network congestion caused by spam transactions, improving network stability under high load. This is not the core of Zcash's investment thesis but collectively helps move the protocol from theoretical privacy to practical usability.
Zcash's next phase of development depends on whether the protocol can evolve from "privacy is achievable" to "privacy can be adopted at scale." Key technical directions to track include:
Tachyon: The most important scaling proposal, aiming to reduce the cost and synchronization burden of shielded transactions, addressing historical pain points for large-scale adoption.
Crosslink: Focuses on transaction finality and network reliability, not entirely replacing existing PoW, but strengthening settlement guarantees. For the investment thesis, Zcash's future depends not only on privacy features but also on overall network robustness and operational reliability.
Shielded Assets: Enables assets other than native ZEC to use Zcash's privacy system. If this functionality is revived and implemented, it would extend shielded transaction capabilities to more assets and applications.
How to Value ZEC
As of July 2026, the overall crypto market assigns an extremely low valuation to privacy features.
Grayscale categorizes assets with "digital currency" use cases into the "Cryptocurrency Sector." This sector currently includes 15 assets with a total market capitalization of $1.4 trillion, with Bitcoin holding approximately a 90% share. ZEC's current market cap is about $8 billion, representing only 0.6% of the digital currency sector. If it could capture 5% of this sector's market share, its market cap would increase ninefold.
Chart 4: ZEC's share of the total monetary market cap is small but growing
ZEC's current market pricing reflects the mainstream market assumption: privacy is a niche demand with a narrow audience, undeserving of a valuation premium. However, in an environment of increasing surveillance, tightening compliance constraints, and frequent financial censorship, if the value of privacy is reassessed, a 0.6% market share may no longer be a reasonable equilibrium level but rather an option value the market has not yet fully priced.
The bullish case for Zcash argues that current market pricing assumes privacy demand will remain niche, but on-chain data already proves privacy demand is real. As of July 20th, shielded transactions accounted for about 90% of total Zcash transactions. Approximately 4.2 million ZEC reside in shielded pools, representing 25% of the circulating supply—a historical high. This indicates privacy is not just a narrative but observable on-chain behavior.
Chart 5: ZEC's shielded supply has reached a historical high
In other words, Zcash does not require explosive growth today to support its potential upside; it merely needs the market to reassess the future value of privacy. Once investors believe privacy should command a reasonable premium within the crypto monetary system, ZEC's current valuation would appear conservative. The market still treats privacy as an optional add-on, not a core attribute of money.
Risks and Other Considerations
Zcash's investment thesis depends not only on privacy demand but also on historical cryptographic assumptions, future security risks, and the network's ability to maintain collaborative stability during significant upgrades.
Regulatory Risk
Zcash's regulatory risk stems not only from providing privacy features but also from whether regulators and service providers recognize its selective disclosure mechanism as meeting compliance requirements. Compared to privacy systems with no disclosure capabilities, Zcash's viewing keys offer a clearer path to compliance. A full viewing key can be authorized to a specified party to view inbound shielded transaction information, receiver addresses, amounts, and memos for ordinary shielded transfers. However, this disclosure is permissioned, not a default full-chain traceability.
Global anti-money laundering rules and the EU's MiCA regulation continuously impose hard requirements on virtual asset service providers for customer due diligence, record-keeping, suspicious transaction reporting, and the travel rule. Viewing keys can reduce but not completely eliminate the risk that exchanges and custodians may be unwilling to support shielded transactions due to operational or policy reasons.
Legacy Trusted Setup Pool Issue
A major historical controversy for Zcash stems from the trusted setup required for the early Sprout and Sapling shielded protocols. The NU5 upgrade introduced the Orchard protocol and Halo proof system; the new Orchard pool no longer requires a trusted setup. Additionally, in 2026, a soundness vulnerability was discovered in the original Orchard circuit, theoretically allowing undetectable token counterfeiting within the pool. Network upgrade NU6.2 patched the circuit; Ironwood (NU6.3) introduced a new, independent shielded pool, prohibited new assets from entering the old Orchard pool, required funds exiting the old pool to pass through Zcash's validation mechanism, restored independently verifiable total supply integrity, and significantly improved the cryptographic outlook.
The remaining issue is that the old pool still exists, with historical funds remaining within it. This risk diminishes over time but still warrants attention when comparing old and new protocol versions.
Quantum Computing Risk
Quantum computing is a long-term risk for most public blockchains, not unique to Zcash. Transparent funds and shielded funds face different quantum threat vectors due to different exposed cryptographic components on-chain. The Electric Coin Company, the long-term developer of Zcash, has explicitly incorporated quantum resistance into its roadmap, indicating this is not a purely theoretical topic. For investment judgment, however, quantum risk is more of a long-term proposition; near- to mid-term focus should be on product usability, ecosystem adoption, and market structure.
Execution and Adoption Risk
Zcash has historically relied on multiple major protocol upgrades to improve usability, security, and scalability, introducing two types of execution risk. First, roadmap goals are highly challenging; Tachyon, Crosslink, etc., are heavyweight technical engineering feats, not simple parameter changes. Second, network upgrades require coordination among engineers, wallet developers, infrastructure service providers, and the entire ecosystem. Zcash's Improvement Proposal process is well-documented, which is an advantage, but the investment thesis still partially depends on sustained development delivery quality and collaboration.
Conclusion
Privacy has always been an important trait for money to have practical value; it's just easier to forget in the digital age. Zcash was born to address an inherent flaw of public blockchains: transactions are easy to verify but difficult to keep confidential. After years of technical refinement, it stands as one of the most representative projects attempting to fill this gap.
Whether private digital currency will grow into a mainstream sector or remain niche is still uncertain. However, at current valuations, the market has hardly priced in the possibility that "the future value of privacy increases substantially."
For investors, the opportunity lies not in betting that Zcash will replace Bitcoin, but in the fact that the value of private digital currency has not yet been fully recognized by the market.
