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Forget Bitcoin. Meet Zcash

December 14, 2017 00:00 AM UTC
- Updated September 02, 2020 11:41 AM UTC

Zcash could reshape the financial system in ways Bitcoin couldn't.

Transcript
Blockchain is like an Excel spreadsheet that anyone in the world can add information into it. You have three columns-- the senders address, the recipient's address, and how much money they're sending. And whenever you want to make a transaction, you append a new row that says this address will send this much of its money to this other address. The problem that I'm most concerned about is that the history of all those transactions is visible to everyone in the world. And so if you actually rely on that for your real life, like if you get paid in that kind of ledger and then you go buy coffee, you'll be revealing to the coffee shop owner what your salary is. Every time you transact with anyone, you're exposing more and more of the history and your behavior to more and more people or to everyone. So in Zcash, we approach that by using encryption. Zcash is a virtual currency, sort of like Bitcoin. In fact, a lot of it is ported over from bitcoins codebase with one pretty big difference. And that is the fact that Zcash uses encryption to conceal payments on the blockchain. All the important information today is protected by modern encryption, and we use the same style of modern encryption in Zcash to protect the information about who's transacting with whom and what they're doing. The interesting thing is they employ a mathematical technique called zero knowledge proofs in order to make this ledger still auditable. We can prove to everyone that a certain transaction moves money that was correctly, like legitimately owned by the owner. Wasn't like fraudulent. And we can prove that without revealing what's underneath the encryption. So it proves a fact about encrypted data without opening the encryption. And so the only reason we need zero knowledge proofs in Zcash is to allow us to have encryption, and also to have a ledger filled with only valid transactions. There are lots of reasons why I might want to be able to prove to someone that I know something without them seeing exactly what it is. You might want to pay your daughter for a medical bill. I want to do it maybe over Blockchain technology and you don't want your neighbor to see it. Using zero knowledge proofs allows us both to understand the contents of our transaction without displaying the contents to other parties. There will be no currency that gets around government controls. Anybody here want to take an opposite view? So Jamie Dimon, the CEO of JP Morgan Chase has been pretty vocal about his distaste for cryptocurrencies. He's called Bitcoin a fraud. That being said, his company is working on blockchain technology, which is a really promising new way to create databases in very simple terms. JP Morgan and the Zcash company, my company are in a technology partnership. They asked us to work with them to add Zcash style encryption into the JP Morgan enterprise Blockchain. Quorum, which is the blockchain that JP Morgan Chase has built, it does not use open cryptocurrencies like Bitcoin or like Zcash for that matter. What they've done instead is they've taken some of the privacy technology that Zcash has developed and incorporated in their cryptocurrency. And they've stripped that out and basically put it into their blockchain system. It's a great data point showing why privacy is important, which is that privacy is necessary for business. Because JP Morgan and the other makers of enterprise blockchains are trying to make a technology that is fitting for various enterprise use cases. And over the past two years or so, all of the people in that whole industry, the whole blockchain industry have come to realize that privacy is a strong requirement. It's an absolute showstopper. You can't run a financial marketplace, a real financial marketplace where everybody knows what's going to happen in the future. Because literally what you are trying to trade on is expectations about the future. So the more that that information is known in advance, you end up with kind of the Heisenberg uncertainty principle of financial markets. Like it exists too quickly, so privacy is integral to having functioning markets. If I am JP Morgan and I'm conducting a trade with Goldman Sachs, I don't necessarily want Santander to see my trade or vise versa. While they might want certain parties, like Regulative, for instance, to see the trade, they don't want their competition to see the trade. It's also necessary for business for consumer protection reasons. If you're running a large business and taking care of a lot of people's personal information, you can't risk leaking that to the world. There's also regulatory requirements, like the Health Information Protection Act and the Child Online Protection Act and things like that, which specifically require that you protect information as part of your business. Zooko is a longtime cypherpunk, which is sort of a term that encompasses somebody who's part activist, part coder. They tend to be pretty libertarian in their views, and have really, really strong respect for privacy. They try to bake these into the technologies they build. If you spend even a little bit of time with Zooko, as I had the pleasure of doing this fall for writing the story, it becomes clear that he's not motivated by material gain. He's definitely more of an Idealist. Certainly working with JP Morgan is a good business opportunity for his company Zcash. But you get the sense that Zooko wouldn't be working on this project if he didn't feel as though it had some great potential to benefit society at large. You know the story of the encrypted love notes in the blockchain? Very shortly after Zcash launched about a year ago, after the blockchain launched, a young woman of my acquaintance said she had received a Zcash payment of a tiny amount. And in the encrypted memo field there was a document. It was tickets to an event that she and her boyfriend had been talking about going to. So it was an encrypted love note in the blockchain. And that actually exists. Now I've never seen it, but I take her word for it. Only the sender and the receiver can see it, but it's in the Zcash blockchain. That's beautiful. Encrypted love notes in the blockchain.