Space & Innovation

A New Digital Currency Promises Total Anonymity

The highly anticipated launch of Zcash is generating some crazy numbers.

On Oct. 28, a new digital currency called Zcash will join Bitcoin, Ethereum and others in the virtual Wild West of digital money.

The launch of the new digital currency is causing a tsunami-sized splash in certain circles, because the technology behind Zcash promises total anonymity for making transactions online.

The fundamentals of the digital currency phenomenon are famously difficult to understand, but it goes something like this: Digital currencies are functionally similar to traditional physical currencies like cash or coins. They're a medium of exchange for the buying and selling of goods and services.

Unlike traditional currencies, however, digital ones have no central authority or government backing - no one is in charge. They're decentralized and operated on peer-to-peer networks online. Any individual unit of digital currency - a bitcoin, say - is essentially a piece of code traded between two people, with a variable worth depending on the market. Like an ounce of gold, the worth of a digital currency unit is in constant flux.

Zcash is a subtype of digital currency known as a cryptocurrency, which incorporates complex cryptography to protect the privacy of all buyers, sellers and traders. The primary appeal of Zcash, for users of crypto-currencies, is that it adds a new twist that protects not only the anonymity of the buyer and the seller, but the details of the transaction itself - the blockchain that acts as a kind of ledger for money moving around.

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Zcash anonymizes transactions with an approach based on "zero-knowledge" security - that's where "Z" in Zcash comes from. These are cryptographic protocols that guarantee the legitimacy of a transaction without revealing any other information.

This anonymity is important to banks and other users in that blockchains can reveal trading strategies and information about customers. Market watchers say this new technology gives Zcash an edge over competing digital currencies.

How much of an edge? Well, that's where the rather eye-popping numbers come in. According to CoinDesk, which tracks developments in digital currency, there's been a huge jump in Zcash futures contracts, which are basically wagers on the success of the new currency.

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The contracts, which trade against the price of the established digital currency bitcoin, have surged from $18 on Sept. 15 to a high of $261 on Oct. 26 - an increase of nearly 1,300 percent. Those kinds of numbers tend to turn heads in the realm of currency trading.

The downside is that Zcash's advanced cryptography requires a lot of raw computing power to facilitate transactions. That may prevent the currency from being widely adopted. Also, because the digital currency is completely untested, things may go wrong that are totally unexpected. The field of study sometimes called systems theory says that, in any system, it's literally impossible to rule out every conceivable problem or threat.

At any rate, the upshot of all this is that Zcash - and its "zero-knowledge" security - may represent a significant leap forward for digital currency, changing the very nature of that thing that makes the world go 'round.

Photo: Bitcoin mining. Credit: BitCoin Opp/Flickr

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