Zcash: Impossible To Trace, Expensive To Buy

Bitcoin, it seems, is out — the cool digital currency taking the world by storm now is Zcash, a product designed by academics to be all but untraceable. Speculators love it — and have been paying for $1,000 a unit to get their hands on the next big thing.

Zcash is the brainchild of a firm led by developer Zooko Wilcox. It has already secured $3 million in backing from a number of Silicon Valley venture capitalists who are involved in the virtual currency industry.

The secret to its secretiveness — according to the developers that built it — is an advanced cryptography.

Though bitcoin had initially been billed as untraceable, to actually use bitcoin in any meaningful way, each user has a bitcoin address that law enforcement can — and has — linked to it owner. Zcash, on the other hand, allows transactions to be confirmed by the network without anyone recording the Zcash addresses involved in the transactions.

Users can opt out of this privacy function if they wish.

The question is whether or not regulators will like seeing so much secrecy for a currency — and what regulators frown on, banks tend to avoid. Bitcoin, on the other hand, has been capturing an increasing amount of bank interest — particularly since the fall of Silk Road — especially the blockchain technology that lies at its center.

But, Jonathan Levin, a founder of Chainalysis, a start-up that helps banks and regulators track activity on blockchains, noted that much of what pushed regulatory tolerance of bitcoin was the fact that it had turned to be pretty traceable for dedicated law enforcement.

“It’s going to be quite difficult for Zcash in its opaqueness to show that, no, it is not all bad stuff going on,” he said.

But Zooco Wilcox — the head developer behind the project — believes he can persuade law enforcement that Zcash is not merely a better way for criminals to operate in secrecy.

“The basic story is that we have been gradually losing our privacy in a whole bunch of ways that people don’t appreciate,” said Matthew Green, an assistant professor at Johns Hopkins who began developing Zcash with some of his graduate students in 2013. “This brings back a little bit of that privacy that computers have taken away from us. This technology gives us a defense against something that until now we have been defenseless against.”

Mr. Wilcox said that existing virtual currencies have been unattractive to businesses because their transaction details are exposed to competitors, creating a business need for a more private virtual currency.

“All of the conversations I’ve had with businesses, banks, regulators and law enforcement have been about the need for data security for commercial applications,” he said.