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Monero vs. ZCash: Privacy Coins Compared

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Monero vs. ZCash

When it comes to privacy coins currently on the market, the two biggest contenders are ZCash (ZEC) and Monero (XMR).

Both of these cryptocurrencies have protocols that are at the cutting edge of blockchain technology. They have both proven themselves over an extended period of time and are relatively well known in the crypto ecosystem.

However, can they really be compared? And, if so, which coin affords you the most privacy?

In this post, I will try to compare the two blockchains and their supposed privacy benefits. I will also look into their mining protocols and the impact that could have on said security.

However, before we jump into a comparison, we have to take a look at the key technology driving each coin.

ZCash Overview

ZCash (ZEC) was released as a Fork of Bitcoin in 2016. Hence, it shares some commonality with Bitcoin in that it is also a Proof-of-Work coin and has the same total mineable supply of 21m coins.

However, that is where the similarities end.

ZCash was specifically forked by the main developer, Zooko Wilcox, in order to be a private alternative to Bitcoin. As such, there is some pretty advanced technology that has been included in the Zcash protocol in order to facilitate this.

ZCash Privacy Protocol

One of the most important privacy features on ZCash has to be it’s use of zero-knowledge proofs and its implementation in their zk-SNARKs.

A full explanation of these are is beyond the scope of this text. Yet, the basic principle of a zero-knowledge proof is being able to prove something is true without conveying anything other than it being true.

This can be particularly useful for occasions when you want to prove that you know a password or have access to a cryptocurrency’s private key without actually sending them.

Example of “Proofing” Secret Data. Image Source: Medium.

Through the use of zk-SNARKs, ZCash allows the user to hide their transaction from the rest of the network. These are called “shielded” transactions and they use addresses that begin with a “z” (z-addrs). These shielded transactions are not mandatory and users must elect to use them.

Users will ordinarily make use of their t-addrs which is the unshielded and transparent transaction. These are no different from normal Bitcoin transactions in that they are broadcast to the network and are fully public.

Below is a helpful image that takes a look at the dynamics of shielded and unshielded transactions.

Example of Different ZCash Transactions. Image Source: ZCash Website.

As you can see, only when users send funds from one z-addr to another are the transactions completely private.

The “Trusted” Setup

Another unique quirk of ZCash was its reliance on what they call the “trusted setup”.

Essentially, this was a public ceremony that the ZCash creators embarked on to rid the future network of potentially deadly “toxic waste”.

In this case, the toxic waste is meant figuratively to refer to the unique private “master” key that could be used to create counterfeit ZEC. This private key was a by-product to the initial creation of the zero-knowledge protocol.

This was no doubt a concern for all users in the ecosystem.

Hence, the developers created the elaborate ceremony where a group of participants would intricately destroy the unique private key pieces (called shards) to ensure that they would never combine and create the dreaded toxic waste.

The Founder’s Fund

The founder’s fund was one of the more controversial aspects of the ZCash ecosystem.

This was hardcoded into the ZCash protocol such that the founders would get 10% of the total mineable coins (2.1m ZEC) which would be distributed incrementally over the first 4 years of the project. Many people considered this as a “tax on mining” and at current rates, it is 20% of all block rewards.

The ZCash Founder’s Fund Split. Image Source: Medium.

It is also by no means insignificant. At today’s rates, the founder’s fund will receive about 1,425 ZEC per day which in today’s dollars is about $179,000 per day. While some see this as an example of “skin in the game”, others think it is enrichment off of the miners.

To be fair to the ZCash developers, not all of the money is heading to the founders as about 2.5% of the rewards will head into R&D and reserves.

Monero Overview

Monero is also a fork of another cryptocurrency called Bytecoin. It forked in April of 2014 and is based on the CryptoNote protocol.

Monero is like ZCash in that it uses a proof-of-work protocol but uses a different hashing algorithm called CryptoNight which is slightly more ASIC resistant than ZCash’s equihash.

However, the real innovations of Monero are when it comes to their privacy enhancing features.

Monero Protocol

Monero relies on some pretty advanced cryptographic technology in order to hide a user’s transactions. These include the following concepts:

  • Stealth Addresses: These are used in order to hide the receiver’s address from the blockchain. They are one-time addresses that are created by the sender and are based on the address given to them by the receiver. Only these two parties will know where the Monero was sent.
  • Ring Signatures: While Stealth addresses help the receiver, we still need to hide the sender’s address. This is done through the use of Ring signatures which mask the address of the person who is sending the funds. It makes use of the signatures of multiple parties to sign the transaction. This “mixin” creates a certain level of plausible deniability for the sender.
  • Ring Confidential Transactions: Ring CT is a relatively new update to the Monero protocol that was implemented in 2017. This used cryptographic functions in order to hide the amount that has been sent thereby making the transaction completely anonymous
Monero Privacy Technology. Image Source: Freedom Node.

Technical explanations of how this technology functions are quite involved and we won’t cover it here. However, the most important thing to note is that Monero requires all transactions to be private transactions and the only choice that the user has in it is the amount of “Mixins” to use in the transaction.

Anti ASIC Stance

ASICs have the cryptocurrency community divided.

Some see them as an great way to give hashing power to a chain and mine coins in a more energy efficient way. Other’s view them as a toxic tool that helps to centralise a network, drive out GPU miners and hence make the chain less trustworthy.

The Monero community is in the latter camp. The developers and ecosystem is well known for their aversion to ASIC mining chips. Hence, not only have they used a hashing algorithm which was quite ASIC resistant but they also hard forked the Monero code in April in order to ward off the risk posed by the Bitmain Antminer X3.

What this shows is that the Monero community is actively working against the threat of these ASICs and is happier to fork their code in the face of any threats from ASICs. This is also a deterrent against any other ASIC manufacturers who want to follow suit.

Protocol Improvements

There are two more really important updates that are being made on the Monero protocol that are set to make the network that much more secure and private. These are the launch of the Kovri I2P Protocol and Bullet proofs.

Kovri will allow Monero to route transactions through the I2P network whereas bullet proofs will make the Monero transactions more efficient and hence cheaper to initiate. If you wanted more information I recently completed a more in-depth piece on Kovri and Bulletproofs.

Monero or ZCash?

What the above overview shows is that both of these cryptocurrnecies use pretty advanced technology. They both have been around for some time, have demonstrated their use cases and have their own selection of backers.

However, what should be your premier privacy coin of choice?

Let’s take a deeper look at the technology and potential concerns that some may have.

Transaction Privacy

Both the Monero ring signature / stealth address technology as well as the zk-SNARKs on ZCash work as intended. They are able to hide transaction data and make them completely private. However, they are implemented in a different way.

Whereas the Monero transactions are all private by default, ZCash only has them as mandatory. This means that most people (out of laziness or indifference) will not use their z-addres. In fact, currently only about 13% of all ZCash transactions use their shielded addresses. The figure is even less when you look at the volume percentage.

Private Transaction Percentages of ZCash. Image Source: ZCash Explorer.

This means that those users who make use of their shielded addresses could immediately raise suspicion of “having something to hide” even if they do not. Therefore, the actions of the users that do not make their addresses shielded is decreasing the privacy of those who do.

Monero on the other hand, decided that this negative externality was not conducive to a cohesive ecosystem. They decided to make all of their transactions private. This means that all transactions on the Monero network look identical and the ecosystem is generally stronger for it.

While there have been concerns about the risk of Monero forks and the impact that they have on the ring signature technology, these are more “edge cases” and unlikely to threaten the network.

Moreover, in the recent Monero hardfork they increased the minimum Mixin level to 6 from the previous minimum of 4. These additional layers of plausible deniability help obscure things that much more.

Centralisaiton Concerns

Centralisation is something that would concern any distributed system let alone one that was focused on privacy.

In the case of Monero vs. ZCash decentralisation, it appears as if Monero is actively fighting against any sort of centralisation. We have seen this with their actions in hard-forking the code recently in order to ward off the risk of the CryptoNight ASICs.

The developers have made it known that they would always take the Anti-ASIC route. Without the ASICs, it means that average users can still contribute hashing power to the network from their home GPU rigs. This takes the power out of the hands of a few large mining farms and places it back into the hands of the community.

Not so much can be said about the ZCash miners. The recent introduction of the Equihash Antminer Z9 had many of the miners in the community angry about the lack of action from the developers and founders.

Then there is the question about the founders and that Founder’s fund.

This has been a contentious issue for the community and the notion that a group of individuals will control 10% of all mined ZEC is quite unsettling.

While some may argue that this aligns their incentives, it only does so until they have received all of their rewards. What happens if after the 4 years they have their 10% and decide to sell out and take a step back from the project? There is no “vesting” as there is with shares. Once they have the ZEC they can easily sell them and walk away from the project.

Trusted Setup

While the trusted setup and the elaborate ceremony were done in order to maximise trust in the ZCash protocol, there are many security hawks who still have a problem with it.

This is because it is based on the community believing with 100% certainty that the master private key is completely destroyed and can never be reconstructed.

This is incredibly hard to do as no one can actually “verify” this is the case. Sure, you have videos, pictures and testimony from the ceremony but you can still not say, without a shadow of doubt, that a private key copy does not exist somewhere. Indeed, one of the most important maxims of crypto is:

“Don’t trust, verify”

While it is more than likely that the ZCash developers were able to effectively destroy the private key shards, this is not something that you can independently verify. I would not really be comfortable putting large amounts of funds into a cryptocurrency asset that lacks independent verification properties.

Monero Has the Edge

While I do not doubt that ZCash is an advanced cryptocurrency with strong privacy protocols, the points above make it clear for me that Monero is still the premier privacy coin.

The community driving the Monero development are some of the most security conscious and privacy centric programmers in the cryptocurrency community. They are mostly driven by ideology and not so much by monetary gain.

Moreover, Monero has proven itself.

For example, when the FBI brought down the founder of the Alphabay darknet market, they were able to identify how much cryptocurrency he had. There was only one coin that they were not able to obtain more information on.

Extract from Asset Forfeiture. Image Source.

While this may be an isolated case, it adds weight behind the case for Monero.

Conclusion

As more and more people become aware of the need for a privacy on the blockchain, they will make the transition away from fully transparent blockchains.

While there are a number of competing privacy coins occupying the space, Monero and ZCash are still viewed as the cream of the crop. Both have proven themselves to be effective and scalable and are both being adopted at record pace.

However, based on the information above, I would be more likely to trust the privacy and security of Monero than I would of ZCash.

Featured Image via Fotolia

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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5 stars on average, based on 5 rated postsNic is an ex Investment Banker and current crypto enthusiast. When he is not sitting behind six screens trading Bitcoin, he is maintaining his numerous mining rigs.




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Altcoins

Why Investors Should Pay Attention to Kyber Network

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The current cryptocurrency ecosystem isn’t nearly as well-connected as it should be. Some coins are very difficult to exchange, and others are very hard to find on any of the common centralized exchanges. This often leads to users going to services like Binance, but in an industry as innovative as the blockchain industry, some new methods have popped up that show promise.

Decentralized exchanges have been popping up everywhere, but Kyber Network has formulated a unique approach to the liquidity and volume problems that currently plague most of these exchanges.

Kyber Network’s Mission

The basic need for Kyber Network comes from the idea that the current evolution of the blockchain ecosystem is incomplete and there is much more that could (and should) be done. The regulations currently in place have made it difficult for centralized exchanges to effectively list new coins, and many crypto-enthusiasts end up stuck with a high variety of digital assets.

Centralization is generally something that the cryptocurrency industry would like to avoid. As we’ve seen in the last few years, many of the current trading exchanges have a ton of inefficiency, as well as security issues and some bureaucracy. This is where much of the need for decentralized exchanges has originated.

Kyber Network’s top innovation is the elimination of order books in favour of using large reserves. There are numerous reserves in place for each currency, which creates redundancy and reduces centralization. This also allows for instant exchanges, which is helpful since many of the top criticisms of decentralized exchanges was the latency issues that often manifest. Although to be clear, Kyber doesn’t refer to itself as a decentralized exchange, but does generally compete in the same space with them.

The Mechanics of Kyber Network

Kyber Network basically operates as an exchange that allows for the fluid transfer of tokens between individuals, allowing them to give and receive in different tokens. This is great when the person sending has Ethereum, and the person receiving wishes only to hold Stellar Lumens.

The way it works is there are reserve entities that hold large amounts of tokens and are compensated a small fee (or a spread) in exchange for providing liquidity to users.

KNC is the Kyber Network token, and it is generally charged to the reserve entities as a cost of doing business on the network. Each time an exchange occurs, a small transaction fee is charged to the reserve. Reserves make their money on the spreads, and then tokens are charged from the reserve managers.

Recent Performance

2018 has seen Kyber place a significant focus on partnerships and continuing to develop their trading breadth. They partnerships include exchanges and wallets that include OasisDEX, Peepeth, ETHIS, Etheremon, Secrypto, Midas Protocol Wallet and Weswap. Additionally, they are now on the final phase of the development of their platform, which includes supporting the trading of options and forwards contracts.

The KNC token has recently been added to Poloniex, but is trading around $0.38, which represents an approximate drop of 95% from it’s all-time high. It is around 20% above its all-time low, and this makes it a strong buying opportunity right now. KNC can be bought on Binance and a few other altcoin trading exchanges, and serves to be a strong bet if you believe in the mechanics of its trading exchange.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Crypto Update: Coins Fall After a Quiet Weekend

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The cryptocurrency segment stabilized this weekend after a technically important breakdown that shifted the short-term outlook to clearly bearish. While the stability was a small plus for bulls, the lack of bullish momentum and the fact that the majors remained below key resistance levels meant that most of the coins remained on sell signals in our trend model. As for the long-term signals, Monero, Ripple, and Bitcoin are the only majors on neutral signals in the still overwhelmingly bearish market.

XMR/USDT, 4-Hour Chart Analysis

Bitcoin continued to fare better than the largest altcoins, but although the most valuable coin made the most technical progress, briefly reclaiming the $6275 level, it also remained in a bearish short-term setup. The total value of the market is stuck near the $200 billion mark, and with Ethereum still being in a steep long-term downtrend and with Ripple giving back a large chunk of its recent gains, sellers are still clearly in control of the market.

BTC/USD, 4-Hour Chart Analysis

Bitcoin’s relative stability continues to be the most encouraging sign in the segment, but the coin is clearly below the previously dominant broad triangle pattern following last week’s breakdown. The technical deterioration means that a test of the key long-term zone near $5850 is increasingly likely, especially as the weak bounce ran out of steam near the $6275 level.

While a weaker support zone is found near $6000, the short-term sell signal is in place in our trend model, and traders shouldn’t enter new positions here. Further resistance is ahead at $6500, $6750, and $7000, while the next major support zone is found between $5100 and $5100.

Ripple Tests $0.42, Ethereum Capped by the $200 Level

XRP/USDT, 4-Hour Chart Analysis

Ripple got back up to the key $0.42 level after plunging below $0.38, but the resistance level halted the bounce and, and the coin is still close to falling back to the previously dominant broad declining trend. XRP is trading right at the declining trendline of the triangle consolidation pattern that developed after the September rally, and bulls would need a sustained break-out above the pattern for a renewed buy signal.

Support levels are found at $0.375 and $0.35, while resistance is ahead in the $0.42-$0.46 and near $0.51 and $0.54, and traders shouldn’t enter new positions here.

ETH/USD, 4-Hour Chart Analysis

Ethereum is still among the weakest majors, and it couldn’t get back above the $200 level during the weekend. ETH remains on sell signals on both time-frames, since the declining trendlines are clearly intact, despite the recent lengthy consolidation period.

Primary support is found at $180, with further zones near $170 and $160, while resistance above $200 is ahead at $235 and $260, and traders and investors should still stay away from the coin.

LTC/USD, 4-Hour Chart Analysis

Litecoin also only managed a weal bounce after the key breakdown below the $56 support, and although it initially respected the $51 level, another test is very likely, and odds favor a break below support given the strong bearish pressures.

A break below the primary support level would warn of the test of the $47 low from August, with the next level of interest being the $44 support, while further resistance above $56 is found at $59 and $64. The coin is on sell signals on both time-frames and traders and investors shouldn’t enter new positions here.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 374 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Altcoins

A Few Lessons From Last Week

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There is an adage on Wall Street.  It is quite old. It was passed down to me from my grandfather last Wednesday.  It goes something like this. When the cops raid the brothel, they take everybody including the piano player.  

No matter when the notion originated, it applies directly, and painfully, to last week’s experience with stocks, bonds and crypto assets. Between early Wednesday and Thursdays New York closing, most major US indices dropped a fast five percent.  Friday showed a tepid rebound with the tech heavy NASDAQ posting a 2.3% one day recovery followed by the S&P 500 with a meager 1.2% upward move. Otherwise there wasn’t much good happening.

The story in crypto land wasn’t any better.  In truth it was worse. Taking just the two big guys during the same Wednesday/Thursday time period, things were dismal.  Bitcoin lost 6% in price before staging a weak 1.1% recovery on Friday. Ether dropped 15.6% on Wednesday, then managed a 3.2% Friday bounce.

Nobody escaped untouched unless you were a short seller in which case, congrats! Having lots of company is hardly any consolation for having to deal with investment losses, even if there are only accounting losses.  Nevertheless, everyone who had the ability to read understood the stock market was on a record breaking binge and thus vulnerable.

The only binge connected to crypto prices was a 10 month long hangover from the record levels of late last year.  So should the Wall Street adage be applied here making crypto take on the role of piano player? Or to present the question in a different way, is the piano player merely an innocent victim of being in the wrong place at the wrong time?

The Stock Market Correction Is Not Over

Stock market corrections are never pleasant but many veteran strategist consider them to be a necessary and even healthy part of the investment process.  Last week’s 5% drop was not even pronounced enough to qualify as a bona fide correction. That requires something even more than the 8%+ drop that took place back in February.  

In the very short term, there is little in economic news that is likely to upset the market this coming week but that doesn’t change the fact that interest rates are putting pressure in bond prices and $80 oil prices aren’t helping the inflation picture either.  Finally, there is the uncertainty created by the midterm elections. Making short run market predictions is a fools game, but this one is an exception.

What Does This Say About Crypto Values?

After events of the last week where already depressed crypto values get beaten down even further than stocks and bonds, that is not a good sign.  One of the reasons for this had to be last weeks report from Diar Ltd. showing how Coinbase’s active customers have dropped 80% from record levels of $24 billion in the fourth quarter of last year to $3 billion in the third quarter of 2018.  News of this study was reported by Bloomberg on Wednesday. So this could well have been the fundamental culprit. If so, the timing could not have been better for the short sellers.

No Longer Trending?

The folks at Diar Ltd. are spot on in their analysis but does this mean the end for crypto? Don’t count on it.  In fact there is a positive side to their findings. The most important point is the crypto prices (except for Wednesday) have become increasingly stable.  This stability will serve long term investors well as it will calm the nerves of regulators and merchants inclined to use crypto as a medium of exchange.

The drop off in activity at Coinbase is not surprising.  Speculators have lost interest. Recently we wrote an article about the competition for investor attention between crypto and cannabis.  There is loads of anecdotal evidence suggesting that this is contributing to crypto interest declining.

Here is just two points to remember.  This week on October 17, cannabis becomes legal for the first time throughout Canada. Investors are acutely aware of this bonanza.  During one of the worst weeks in the stock market, US listed cannabis stocks like Medmen Enterprises (MMNFF: $5.84) gained 35% while APHRIA (APHQF: $14.65) added over 13%.  Both stocks experienced greatly accelerated volume. This is an example of just two of many cannabis opportunities that are challenging crypto for investment capital. So the piano player may not be so innocent: he could just be smoking a little ganja.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 112 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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