The breakthrough of Zcash and the revival of on-chain privacy

Author: Tanay Ved Source: coinmetrics Translation: Shan Ouba, Golden Finance

Key Points Summary:

• Zcash has outperformed the market, with ZEC increasing nearly 10 times since October, and interest in on-chain privacy is resurging.
• The protected supply has risen to 4.9 million ZEC (approximately 30% of the supply), primarily due to an increase in the flow of some protected funds, rather than completely private transactions.
• The advancements in zero-knowledge proofs, unified address wallets such as Zashi, and cross-chain channels like NEAR Intents have significantly reduced the friction in adopting on-chain privacy.

Introduction

Public blockchains like Bitcoin have introduced a completely new way of transferring value without relying on intermediaries, instead using publicly verifiable ledgers that anyone can view transaction activities. However, the anonymity of addresses still allows for transaction activities to be observed, and in many cases can be traced back to real-world entities, thereby exposing consumption patterns, trading counterparts, and other sensitive information, which may limit the types of activities conducted on the blockchain.

Zcash was born in 2016 with the aim of providing a privacy-centric alternative. It is built on the Bitcoin codebase and retains its monetary design while introducing a privacy protection mechanism that users can choose to participate in through zero-knowledge proofs (ZK proofs), allowing users to encrypt transaction details while the network can still fully verify them. Its goal is to achieve the privatization of ownership and transfer of value without compromising the trust model of the public blockchain.

In the past decade, this vision is gaining new momentum. Amid the market correction, privacy coins, especially Zcash (ZEC), are rising against the trend, with ZEC's increase exceeding 900% since October last year. Although this has rekindled interest in privacy themes, is this merely another speculative rotation, or is it a sign that privacy coins are truly being widely accepted?

Source: Coin Metrics Reference Rate

This article will explore the revival of Zcash and the resurgence of on-chain privacy, tracing the origins of Zcash, analyzing the growth of shielded activity, and examining the fundamentals and catalysts behind its recent breakthroughs.

The Emergence and Construction of Zcash

Zcash originated from blockchain privacy academic research conducted by Johns Hopkins University in 2013. Early research results led to the emergence of protocols such as Zerocoin and Zerocash, which innovatively utilized zero-knowledge proofs to enhance the privacy of public blockchains.

Building on this, Electric Coin Company launched Zcash in 2016, which is a fork of Bitcoin. It inherits Bitcoin's monetary structure and proof-of-work consensus mechanism, but introduces the feature that users can choose to use shielded transactions supported by zk-SNARKs. zk-SNARKs are a form of zero-knowledge proof that allows the network to verify the validity of transactions without revealing the internal details of the transaction (such as sender, receiver, or amount).

Token Economics and Currency Design

Similar to Bitcoin, Zcash also follows a fixed issuance schedule, balancing long-term scarcity with predictable block rewards. The supply cap for Zcash is 21 million coins, with new coins issued approximately every 75 seconds, which is similar to Bitcoin's proof of work mechanism but with a faster block generation rate. Zcash also inherits the four-year halving cycle, where block rewards decrease over time.

After the most recent halving in November 2024, the reward for each block will decrease to 1.5625 ZEC, resulting in an annual inflation rate of approximately 4%.

Data Source: Coin Metrics Network Data Pro

Zcash has undergone multiple network upgrades, the most recent being NU6 in November 2024. NU6 changed the structure of allocating development funds from Zcash block subsidies, distributing 80% of block rewards to miners, 8% to Zcash community grants (ZCG) to fund ecosystem teams, and 12% to the “lockbox” within the protocol, which is a delayed funding pool managed by token holders.

Source: Electric Coin Company Zcash Halving

The upcoming upgrade will introduce several improvements, such as ZIP-234, which will make the issuance schedule of ZEC smoother as part of its long-term sustainability efforts.

Adopting Zcash Shielded Supply & Transactions

One of the core features of Zcash is that it uses two different types of addresses: transparent addresses (t addresses) and shielded addresses (z addresses). The functionality of transparent addresses is similar to that of Bitcoin, where the sender, receiver, and transaction amount are all publicly visible. In contrast, shielded addresses use zero-knowledge proofs, so while the transactions and fees still appear on the ledger, specific information such as participants and amounts remain hidden.

The selective privacy model of Zcash allows users to choose between a completely transparent process and a fully shielded one, enabling selective privacy without the default assumption that all activities are private.

Source: Zcash Documentation

In light of this, we can now examine the prevalence of on-chain shielded transaction activity. The latest data shows that the private usage of Zcash has significantly increased. Currently, the number of shielded addresses holding ZEC has risen to 4.9 million, accounting for approximately 30% of the current supply, while this proportion was only 11% at the beginning of 2025. This indicates that a significant portion of ZEC holders choose to enable the privacy layer rather than complete transparency. A larger shielding pool also expands the range of anonymity, which means that as more ZEC is held privately, the difficulty of tracking each shielded transaction increases.

Data Source: Coin Metrics Network Data Pro

This growth is mainly attributed to the Orchard pool, which is a more efficient shielded pool launched in 2022. Its lighter and faster proof mechanism makes it very suitable for daily use. Additionally, tools such as the Zashi wallet (launched in 2024) introduced unified addresses and direct shielded transfer functions, thereby lowering the usability barriers that have previously restricted user activities. Furthermore, its integration with NEAR Intents allows users to natively exchange shielded ZEC with other assets on-chain, effectively reducing friction and expanding the entry points for Zcash.

Source: Coin Metrics ATLAS

In recent weeks, the total trading volume of ZEC has surged more than 10 times. The volume of shielded transactions, including shielded transfers, unshielded transfers, and mixed transactions, has increased significantly, while the volume of completely shielded transfers still constitutes a small proportion. This indicates that the recent growth is primarily driven by value flowing in and out of the shielded pool, rather than being fully retained within the shielded pool. Coupled with the increase in shielded supply, this suggests that even if users are not fully adopting end-to-end privacy processes, an increasing number of users are choosing to utilize the privacy layer of Zcash.

Data Source: Coin Metrics Network Data Pro

Conclusion

The recent breakthrough of Zcash is less about speculative price increases and more about a price adjustment after its fundamentals have already changed. Before the price surge, the supply of shielded layers had already begun to increase, supported by factors such as faster validation speeds, better wallet user experiences, and more convenient cross-chain access. However, the surge in shielded and unshielded transactions came later, indicating that price momentum and a renewed focus on privacy have encouraged more users to enter the shielded layer.

Tools like the Zashi wallet, with unified addresses and seamless shielded transfer functions, as well as mechanisms like NEAR Intents that support cross-chain direct exchanges into shielded ZEC, have significantly reduced transaction friction. Meanwhile, the widespread revival of zero-knowledge technology, from Rollup to Tachyon and other scaling plans, has brought renewed attention to Zcash's long-standing privacy model.

Overall, the fundamentals and prices seem to reinforce each other. Infrastructure-driven growth lays the foundation, while public sentiment accelerates adoption. The increase in partially shielded traffic indicates a growing demand for selective, voluntary privacy protection. Whether this trend can be sustained will depend on the continued deepening of shielding activities, as well as ongoing improvements in tools and integration, which will lower costs and enhance the convenience of on-chain privacy protection.