Written by Michael Zhao, Grayscale Research
Compiled by: Luffy, Foresight News
Original title: “Grayscale: Zcash, Financial Privacy in the AI Era”
Privacy is not a niche add-on for money—it is a critical component that enables money to function properly. People do not want every transaction, account balance, and financial relationship to be publicly exposed. Physical cash possesses this property. Historically, financial systems relying on intermediaries (banks) also maintained a degree of practical confidentiality, limiting third parties from arbitrarily accessing financial records, though information leaks were still possible. Even law enforcement agencies typically require a court order to access an individual’s financial data.
Technological changes and societal shifts place pressure on this system, often sparking public discussions about financial privacy and the development of new methods to protect it. In the 1970s, the digitization of financial records and the enactment of the Bank Secrecy Act brought greater attention to financial privacy. Similarly, in the late 1990s and early 2000s, the rise of the internet and online banking, along with the passage of the Patriot Act, once again made financial privacy a focal point, driving widespread adoption of tools such as encryption and two-factor authentication.
Chart 1: Technological advancements may increase focus on financial privacy
Grayscale Research believes we are on the brink of a third wave of public interest in financial privacy, triggered by the adoption of stablecoins and various blockchain applications, as well as AI-driven advancements in financial surveillance. Multiple high-frequency indicators show that public attention to this issue has already begun to rise.
Chart 2: Recent increased attention to financial privacy
Zcash emerged in this context. As a decentralized digital currency, Zcash follows a foundational logic similar to Bitcoin but incorporates advanced privacy mechanisms. While Bitcoin achieved digital scarcity, it failed to deliver digital privacy. Its transparency ensures auditability but sacrifices use cases requiring confidentiality. If crypto users ultimately view private digital currencies as a distinct need separate from transparent digital assets, Zcash is well-positioned to capture this market. Currently, ZEC’s market capitalization accounts for only about 0.4% of the total crypto market cap, suggesting an undervaluation relative to its technical capabilities and the potential market for privacy-focused digital currencies.
Privacy is becoming a standalone product category.
On public blockchains, account balances, counterparties, and transaction histories are permanently visible to all. Even if users employ anonymous addresses, their activities are often gradually traced and linked through exchanges, counterparties, wallet behaviors, and on-chain analysis tools. In reality, the information leaked on public blockchains often exceeds user expectations.
However, the vast majority of users require a certain level of financial privacy. Individuals do not wish for their account balances or spending records to be publicly visible by default; businesses seek to keep supplier information, payroll disbursements, treasury fund flows, and customer transactions confidential; and institutions do not want their wallet structures or transaction patterns to be continuously mapped and tracked.
Therefore, privacy needs do not come solely from groups seeking complete anonymity, but rather from the widespread demand for confidentiality in economic activities.
Within the cryptocurrency industry, the privacy sector has long faced a major challenge: difficulty in deployment and adoption. Strong privacy protections introduce additional friction for exchange support, wallet integration, and market access. Therefore, privacy in crypto is not just a technical feature—it also requires balancing trade-offs at the business level.
Several approaches to on-chain privacy
Different cryptographic privacy systems require different types of information to be concealed. Some solutions merely make transaction flows on public ledgers harder to trace, while others directly hide key fields of the transactions.
- Coin-mixing privacy solutions: Operate on public blockchains like Bitcoin, such as CoinJoin, CashFusion on Bitcoin Cash, and PrivateSend on Dash. These only increase the difficulty of transaction tracing, while the underlying ledger remains fully public.
- Confidential transaction systems: For example, Litecoin MWEB can hide transaction amounts to achieve basic structural privacy, but still differ from systems that fully obscure transactions.
- Default privacy-focused public blockchain: Represented by Monero, privacy is enabled by default without requiring users to manually activate it.
- Privacy-preserving transaction system: Represented by Zcash, it verifies transaction validity without exposing the sender, recipient, or transaction amount.
In the privacy sector, Zcash holds a unique position. It is a foundational public blockchain with optional privacy, allowing transactions to conceal the sender, receiver, and amount at the transaction layer. This is fundamentally different from privacy add-ons built on top of transparent blockchains.
Chart 3: Trading privacy varies across different cryptocurrencies
What is Zcash, and how does it work?
Zcash is a public blockchain for peer-to-peer value transfer, with a maximum supply of 21 million tokens, using a proof-of-work (PoW) security model and featuring many similarities to Bitcoin. The key difference is that users can choose to enable shielded transactions rather than having all transaction details publicly visible by default.
The Zcash network supports two types of transactions:
- Public trading: Fully visible on-chain, consistent with Bitcoin transfer logic.
- Transaction shielding: Enables verification of transaction legitimacy without exposing the sender, recipient, or transaction amount.
In simple terms, Zcash enables transaction verification without fully exposing the details publicly.
Zcash uses zero-knowledge proof technology to build shielded pools, minimizing on-chain information leakage as long as funds remain within the shielded pool. Zero-knowledge proofs are an advanced class of cryptographic techniques used in blockchain for both privacy preservation and scalability.
Zcash supports selective disclosure, allowing users to grant specified third parties query access to shielded transactions using viewing keys. Shielded transactions are not entirely opaque—they remain private from the public while still enabling users to make controlled disclosures when needed.
Zcash Development Journey: Legacy Protocol, New Chapter
Zcash launched in 2016, making it an established project by crypto industry standards and often mistaken for a relic from the previous cycle. However, from its inception, its goal has extended beyond mere privacy—it aimed to truly implement zero-knowledge cryptography within a digital cash system.
Its core concept was groundbreaking at the time: adopting Bitcoin’s monetary model while enabling private transactions on a public blockchain. Zcash was among the first projects to implement privacy-preserving digital cash at the foundational layer of a public blockchain, rather than merely adding privacy as an upper-layer feature or wallet function.
However, in the early stages, the technical vision outpaced the supporting product infrastructure. Early shielded transactions carried enormous computational overhead and offered a far worse user experience than public transactions. Several major upgrades have gradually alleviated this issue:
- Sapling (2018): Significantly reduced proof generation time and memory usage, making shielded transactions practically usable—generating a shielded transaction takes only a few seconds and requires as little as 40 MB of memory, directly boosting adoption.
- Orchard / NU5 (2022): Upgraded the cryptographic foundation by introducing the Orchard shielding protocol and Halo2, eliminating the need for a trusted setup in the new shielding pool.
- Ironwood (2026): Patch the Orchard circuit vulnerability, establish a new shielded pool, eliminate theoretical token counterfeiting risks, and ensure the integrity of token supply.
- Unified Address and Wallet Optimization: Streamline the interaction process so users can use both public and shielded receiving addresses without managing multiple address formats.
Zcash aims to do more than just enable private transactions—it’s about making private transactions scalable and easy to use. Years of effort to reduce friction are now beginning to pay off.
The wallet layer is a critical component. Zodl (formerly Zashi) is no longer just an asset storage tool, but rather an interaction gateway with a privacy-first approach. The product integrates built-in exchange and CrossPay cross-asset transfer functionalities based on NEAR Intents, while also supporting cold storage with shielded balances.
The value of these features lies in reducing the steps users are forced to take to exit the shielded pool, allowing deposits, payments, and exchanges for other assets to remain as much as possible within the encrypted environment.
Historically, the biggest bottleneck for Zcash has never been whether privacy-preserving transactions are technically feasible, but whether users can remain secure throughout the entire transaction process.
The Zcash ecosystem infrastructure is also gradually improving. In April 2026, leading mining pool Foundry announced the launch of a U.S.-based Zcash mining pool targeted at institutional and publicly traded miners. While this does not directly increase the number of shielded wallet users, it signals the ecosystem’s maturation: increased industrial-grade support and higher institutional awareness of this blockchain.
In addition, adjustments to fee policies and mempool management help alleviate network congestion caused by spam transactions and improve network stability under high load. While not central to Zcash’s investment thesis, these improvements collectively drive the protocol from theoretical privacy toward practical usability.
Zcash's next phase of development depends on whether the protocol can evolve from "privacy is possible" to "privacy is scalable." Key technical areas to track:
Tachyon: The most important scaling proposal, aimed at reducing the cost and synchronization burden of shielded transactions, addressing historical pain points in large-scale deployment.
Crosslink: Focuses on transaction finality and network reliability, without fully replacing the existing PoW, enhancing settlement assurance. For investment logic, Zcash’s future depends not only on its privacy features but also on the overall robustness and operational reliability of the network.
Shielded assets: Enable assets other than native ZEC to utilize the Zcash privacy system. If this feature is restarted and implemented, it will extend shielding capabilities to more assets and applications.
How should the value of ZEC be measured?
As of July 2026, the overall cryptocurrency market assigns a very low valuation to privacy features.
Grayscale classifies assets with a "digital currency" use case into the "cryptocurrency sector." This sector currently includes 15 assets with a combined market capitalization of $1.4 trillion, with Bitcoin accounting for approximately 90% of the share. ZEC currently has a market capitalization of about $8 billion, representing only 0.6% of the digital currency sector. If it were to capture 5% of this sector's market share, its market capitalization would increase ninefold.
Chart 4: Although ZEC's share of the total cryptocurrency market cap is small, it is growing.
The current market pricing of ZEC reflects the prevailing market assumption that privacy is a niche demand with a limited audience, not warranting a valuation premium. However, if, in an environment of increasing surveillance, tightening regulatory constraints, and frequent financial censorship, the value of privacy is reassessed, a 0.6% market share would no longer represent a balanced equilibrium, but rather an option value that the market has yet to fully price in.
Bullish views on Zcash argue that the market currently prices in the assumption that privacy demand will remain niche, but on-chain data has proven that privacy is real. As of July 20, shielded transactions accounted for approximately 90% of all Zcash transactions, with around 4.2 million ZEC held in the shielded pool, representing 25% of the circulating supply—a record high. This demonstrates that privacy is not just a narrative, but an observable, on-chain reality.
Chart 5: ZEC's shielded supply has reached an all-time high
In other words, Zcash does not require explosive growth today to support its potential upside; it simply needs the market to reassess the future value of privacy. Once investors recognize that privacy deserves a moderate premium within the cryptocurrency ecosystem, ZEC’s current valuation will appear conservative. Today, the market still treats privacy as an optional feature rather than a core attribute of money.
Risks and Other Considerations
The investment thesis for Zcash depends not only on privacy demand but also on historical cryptographic assumptions, future security risks, and the network’s ability to maintain collaborative stability through major upgrades.
Regulatory risk
The regulatory risk associated with Zcash is not solely due to its privacy features, but also because regulators and service providers must recognize that its selective disclosure mechanism can meet compliance requirements. Compared to privacy systems with no disclosure capabilities whatsoever, Zcash’s viewing key offers a clearer path to compliance. A full viewing key can be granted to designated parties to inspect incoming shielded transactions, receiving addresses, amounts, and notes on regular shielded transfers. However, this disclosure is authorized—not inherently traceable across the entire chain.
Global anti-money laundering regulations and the EU’s MiCA legislation continue to impose strict requirements on virtual asset service providers, including customer due diligence, record retention, reporting of suspicious transactions, and the travel rule. While key visibility can be reduced, it cannot fully eliminate the risk that exchanges and custodians may still decline to support shielded transactions due to operational or policy reasons.
Outstanding trusted settings fund pool issue
A major controversy in Zcash's history stemmed from the trusted setup required for the early Sprout and Sapling shielding protocols. With the introduction of NU5, the Orchard and Halo proof systems were launched, eliminating the need for a trusted setup in the new Orchard pool. Additionally, a soundness vulnerability was discovered in the original Orchard circuit in 2026, theoretically allowing undetectable token forgery within the pool. The network upgrade NU6.2 fixed the circuit; Ironwood (NU6.3) introduced a completely new, independent shielding pool that prohibits new assets from entering the old Orchard pool. Funds exiting the old pool must pass through Zcash’s verification accounting mechanism, restoring independent verifiability of the total circulating supply and significantly improving the cryptographic outlook.
The legacy issue is that the old liquidity pool still exists, and historical funds remain within it. This risk diminishes over time, but it should still be noted when comparing the old and new protocol versions.
Quantum computing risk
Quantum computing represents a long-term risk for most public blockchains, not unique to Zcash. Publicly traded funds and shielded funds face different quantum threat pathways due to differences in the cryptographic components exposed on-chain. The Electric Coin Company, long responsible for Zcash development, has explicitly integrated quantum resistance into its roadmap, demonstrating this is not merely a theoretical concern. However, for investment decisions, quantum risk remains a long-term consideration; near- to medium-term priorities are product usability, ecosystem adoption, and market structure.
Execute落地risk
Zcash has historically relied on multiple major protocol upgrades to iterate on usability, security, and scalability, introducing two types of execution risk. First, the roadmap objectives are highly challenging; technologies such as Tachyon and Crosslink represent substantial engineering efforts, not simple parameter adjustments. Second, network upgrades require coordinated effort among engineers, wallet developers, infrastructure providers, and the entire ecosystem. While Zcash’s improvement proposal process is well-documented and represents a strength, the investment thesis still partially depends on consistent development delivery quality and cross-stakeholder collaboration.
Summary
Privacy has always been a crucial characteristic of money’s practical value, though in the digital age, we’re more likely to overlook this. Zcash was created to address the inherent limitation of public blockchains: transactions are easy to verify but difficult to keep private. After years of technical refinement, it has become one of the most representative projects aiming to fill this gap.
It remains uncertain whether private cryptocurrencies will grow into a mainstream sector or remain niche. However, based on current valuations, the market has barely priced in the possibility of a significant increase in the future value of privacy.
For investors, the opportunity lies not in betting that Zcash will replace Bitcoin, but in the fact that the value of privacy-focused cryptocurrencies has not yet been fully recognized by the market.