Anonymous transactions inspire the most controversy in the blockchain space. Our position is not to condone or condemn privacy focused projects, but instead evaluate them using the same rubric as the rest of our investments.
AlphaBlock has investigated several anonymous focused projects such a Dash and its many X11 clones (PIVX, SYNX), as well as Monero and other CryptoNote focused projects, before settling on the Zero Knowledge proof protocol as a technology worthy of serious investigation.
There are five projects actively working on the Zero Knowledge proof protocol.
- Zcash: Original project developed by Zooko Wilcox
- Zclassic: First fork of Zcash that removes the 20% developer fee on mining rewards
- Zencash: A fork of Zclassic focused on a "secure node system" to incentivize a censorship resistant network of ledger nodes
- Hush: A fork of Zcash focused on secure messaging and integrating smart contracts
- Komodo: A fork of Zcash focused on building a decentralized exchange
Zero knowledge proof transacts in a fundamentally different way from traditional blockchain technologies like Bitcoin, and even other anonymous protocols such as the afore mentioned X11 and Cryptonote algorithms. The zk-SNARK protocol allows for the sender/receiver and amount of transactions to be obscured from showing up on the shared public ledger in a mathematically provable manner. A better explain of the full differences between zk-SNARK and another methods can be found here.
This is a very difficult feat technically as it subverts how the traditional blockchain ledger system works. A recent NPR Radiolab episode on Zcash explains the high level mechanics of how the project was originally created.
The trust in the protocol ultimately resides on the protection of a master private key that has access to the entire network. As long as this private key remains provably hidden the protocol remains secure.
The original chain offers many benefits in branding and awareness, as well as the continued work of Zooko Wilcox (the creator of the zero knowledge proof protocol).
While there is contention over the 20% developer fee, the fee does provide the project with a structure that allows for a centralized planning budget to fund further development and spur adoption.
A contingent of the Zcash community felt the centralized development fund model offered in Zcash was not in their best interest and forked the project with a removal of the 20% developer fee on mining rewards. In our view the project does not offer a significantly different use case beyond the original Zcash project.
A further split recently occured with Zclassic creating a new project called Zencash. The main value proposition of Zencash is the creation of a "Secure node system". This system aims to reward operators of ledger nodes with 3.5% annual interest payments from mining rewards for hosting secure nodes.
The secure node system will create a censorship resistant network that can pose as regular internet traffic to avoid nodes being blocked by a potential adversarial nation state or ISP. An additional focus of the project is a secure messaging system that will allow users to send message data anonymously in addition to transaction data.
The team has written an excellent whitepaper that discusses the details of the project further.
A small team of developers including an original Zcash core developer forked Zcash into a project focused on secure messaging and smart contracting. The project seeks to incorporate full smart contracting capability by porting the counterparty codebase.
Hush is currently only tradeable on Cryptopia with very small daily volumes. Extreme caution is warranted when investing small market capitalization tokens.
Komodo takes a unique spin on the Zcash protocol building a "delayed" proof of work system on top of the existing Zcash protocol. This allows Komodo use Zero Knowledge as the primary consensus mechanism, while also further validating transactions by referencing the bitcoin blockchain.
In addition, Komodo also offers a smart contracting system and a decentralized exchange called Agama. If implemented successfully and widely adopted, this would allow users to anonymously trade any blockchain asset without a relying on an exchange as a third party.
This could prove particularly disruptive with the integration of fiat currency gateaways as this would allow any user to anonymously convert their native currency into a blockchain token, then trade for any other blockchain token assets without the permission of any third party authorities.
Editors note 9/14 - In the recent wake of the Chinese government ban on centralized exchanges - anonymous decentralized exchanges such as Agama offer users a strong value proposition incentive to patron the network.
Portfolio allocation notes
Our largest positioning among the five zero knowledge protocol projects resides with Zencash and Komodo. We feel the risk/reward ratio is the highest given the current prices relative to the potential each platform could offer to the market.
We have also placed a small position in Hush given the potential asymmetric upside if the project is able to deliver on the road map presented, as well as a small position in Zcash to provide exposure to the original project.