Zcash vs Bitcoin: Very Similar, But Different

Alex Sunnarborg is the founder of Lawnmower, a blockchain investment and market data platform founded in 2015.

In the post, Sunnarborg contrasts the attributes of Bitcoin with the recently launched cryptocurrency Zcash and outlines his thoughts on the market potential of both cryptocurrencies.

With the official launch of Zcash (and the speculation surrounding it), you might be curious about how this decentralized, open-source cryptocurrency compares to Bitcoin.

While sharing many structural similarities with Satoshi Nakamoto’s Bitcoin design, Zcash leverages advanced new cryptographic techniques to provide optional and improved privacy and transparency, as well as using its own unique blockchain.

But despite their differences, Bitcoin and Zcash also have things in common.

The supply model of Zcash tokens is very similar to that of Bitcoin - it also has a fixed and known issuance pattern, with production halving approximately every 4 years. And, like Bitcoin (BTC), Zcash (ZEC) has a maximum supply of 21 million.

Given these similarities, it’s not hard to see why the prices and market capitalizations of these two assets are often compared.

Begin with caution

It has been nearly 8 years since the Bitcoin Genesis Block was mined, and more than 15.75 million BTC have been mined (accounting for more than 75% of the total Bitcoin).

Zcash developers have now launched a cryptocurrency similar to Bitcoin (although there are some differences).

Compared to Bitcoin, Zcash's blockchain and issuance structure are different in that the average block time of ZEC is 2.5 minutes and the initial block reward is 12.5 ZEC. This design is to reduce the impact of possible negative events, such as "major bugs" or "security vulnerabilities".

So, for Zcash, the initial blocks only rewarded a small amount of ZEC, which means that with a fixed supply in the ecosystem, the block reward will increase over time.

So you can imagine that in the early stages, exchanges will receive a large number of ZEC buy orders, but there will be very few ZEC sell orders because the ZEC production is too low during this period.

Competing with Bitcoin?

Before Zcash was officially released, derivatives exchange BitMEX opened the Zcash futures trading market to traders before the first ZEC was mined.

The futures contract offered by BitMEX has a validity period of approximately two months, expiring on December 30, and the ZEC price is based on the ZEC to BTC exchange rate at that time.

At the time of publishing, the price of ZEC on BitMEX is 1.5 BTC, which means that the market predicts that by December 30, 1 ZEC will equal 1.5 BTC, and that approximately 330,000 ZEC will have been mined by then.

On October 28, the price of Bitcoin was $685. 1 ZEC equals 1.5 BTC, which means that by December 30, the market value of ZEC will reach $350 million, which is enough to make ZEC rank among the top five digital assets.

Of course, market demand may make Bitcoin higher than ZEC on December 30. However, the psychological impact of ZEC and Bitcoin being equal is undoubtedly worth paying attention to.

Zcash Reward Structure

Zcash was created by a public team and company (the Zcash Electronic Currency Company) with many high-profile employees, advisors, and investors.

As an additional incentive beyond company equity, some team members will also receive a portion of future ZEC block rewards during future mining processes.

10% of the total supply, or 2.1 million ZEC, will be distributed to groups other than miners.

Investors, employees, advisors, founders, the company (as a ‘strategic reserve’ to raise funds for new projects), and the non-profit Zcash Foundation (created to ‘maintain and improve the Zcash protocol’) will all receive designated portions of future block rewards over specific time periods.

These 2.1 million ZEC will be distributed over the first four years until the 10.5 millionth ZEC is mined, at which point non-miners will receive 20% of the block rewards.

After 4 years, the next 10.5 million ZEC will be rewarded only to miners.

Investment and financing

Zcash also released some details about its investors and previous fundraising structure.

The company's latest $2 million financing accounted for 6.25% of the company's total value, which is $32 million. The previous round of $1 million financing accounted for 10.15% of the company's shares, and the company's market value was about $10 million at the time.

Thus, in the first year, early investors paid $1 million for shares in the Zcash Electronic Currency Company and 214,000 ZEC (1 ZEC was about $4.66 at the time), while the latest investors paid $2 million for shares and 132,000 ZEC (1 ZEC was about $15.15).

Another important concept to remember about Zcash is that the ideas behind the technology are also being applied to other projects or protocols.

There have been plans and talks about extending some of the functionality of Zcash to Ethereum, or vice versa, bringing Ethereum smart contract functionality to Zcash.

Therefore, ZEC’s value is clearly based on multiple factors and should be considered against comparable and even competing platforms and assets such as BTC, ETH, and future projects that are also able to adopt and iterate on these groundbreaking and open-source developments.