Zcash Surging on 'Cypherpunk Principles' as Bitcoin Alternative: Galaxy Digital

In brief

Zcash is being portrayed as "encrypted Bitcoin,” according to Will Owens.
The privacy-focused crypto shares some design elements with Bitcoin.
The U.S. government has cracked down on Bitcoin privacy tools.

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As barriers between crypto and traditional finance blend, Zcash is gaining recognition as an alternative to Bitcoin, according to Will Owens, a research analyst at Galaxy Digital.

Although the privacy-focused crypto is much smaller than its $2 trillion counterpart, Zcash borrows foundational elements from Bitcoin’s codebase, and it’s serving as a spiritual successor in some ways, Owens wrote in a Tuesday report.

Zcash allows users to “shield” transactions with zero-knowledge proofs, and the network’s ability to support anonymous activity is resonating with some, who fear that Bitcoin is becoming centralized through Wall Street adoption or are wary of on-chain surveillance, Owens wrote.

Since it debuted in 2016, Zcash has underperformed Bitcoin for much of that time. Still, Zcash’s price has increased nearly tenfold to $396 from $40 over the past two months, after hitting a seven-year peak of $376 in October, according to crypto data provider CoinGecko.

Owens highlighted how Zcash is being positioned as an alternative to Bitcoin, as critics of the larger asset argue that exchange-traded funds are eroding Bitcoin’s ability to serve as electronic cash in the U.S. because they rely on centralized institutions like custodians.

“Bitcoin itself has always been fully transparent; ETFs haven’t made it any less so, only more intermediated,” Owens wrote. “Zcash’s advocates, by contrast, frame it as ‘encrypted Bitcoin,’ a return to cypherpunk principles that resonate amid widespread onchain surveillance.”

Zcash was forked from Bitcoin’s codebase, inheriting a supply cap of 21 million, proof-of-work consensus model, and an issuance rate that’s cut in half every four years. With shielded transactions, however, Owens wrote that Zcash is “directly addressing the broader privacy limitation” that Satoshi Nakamoto, Bitcoin’s pseudonymous creator, once acknowledged.

For years, Bitcoin users have turned to CoinJoin, a privacy strategy where users combine funds into a single transaction to obscure the flow of funds. In the U.S., wallets offering that service, such as Samourai and Wasabi, have faced “mounting regulatory pressure,” Owens wrote.

Federal prosecutors said earlier this week that they’re seeking the maximum sentence against Samourai founders Keonne Rodriguez and William Lonergan Hill, who were arrested last year and have since pleaded guilty to a conspiracy to operate an unlicensed money transmitter.

A month after Samourai’s founders were arrested, Wasabi banned U.S. customers and announced the preemptive closure of its privacy-preserving service.

Owens noted that Zcash’s fundamentals haven’t recently changed, but the perceptions around its technology have. He also referenced “constant vocal support from some of crypto’s top voices,” which likely includes Mert Mumtaz, CEO of Solana infrastructure firm Helius Labs.

“I love shilling privacy stuff because it actually ends up making a difference in the privacy properties of these systems,” Mumtaz said on X.

Mumtaz referenced a core Zcash dynamic: the network’s privacy is enhanced as more people engage in shielded transactions because those funds enter the same so-called pools.

“The larger the shielded pool, the harder it is to trace flows,” Owens wrote, noting that 30% of Zcash supply has become shielded. “A bigger anonymity set equals stronger privacy.”

Zcash is the largest privacy-focused crypto by market cap, according to CoinGecko, with a total value of $6.5 billion. Its biggest competitors are Monero and Litecoin, which are currently worth $6.44 billion and $6.43 billion, respectively.

As Zcash has surged, interest in other privacy-focused cryptos has re-emerged, including in Dash and Decred. Over the past week, Dash has soared 162% to $122, while Decred has jumped 139% to $41 over the same period of time.