Author: Willo , Arkham
Compiled by: Yuliya, PANews
Editor's Note: Zcash, launched in 2016, is a privacy-focused cryptocurrency built on top of Bitcoin's codebase. While its core vision is to anonymize transaction information, in practice, most ZEC transactions can still be traced on-chain. This article will analyze how Zcash works and explore why most ZEC on-chain transactions are still traceable, demonstrating that the actual level of privacy Zcash provides depends entirely on how users choose to use it.
Zcash is a digital currency built on Bitcoin's underlying technology, but its design aims to address what its creators saw as Bitcoin's biggest flaw: the complete transparency of transaction information. Like Bitcoin, Zcash has a hard cap of 21 million tokens, halves its block reward every four years, and operates on a Proof-of-Work (PoW) consensus mechanism. At its underlying architecture, it also shares Bitcoin's UTXO transaction model. In most cases, Zcash transactions appear identical to Bitcoin transactions; the difference lies in the fact that some Zcash transactions are designed to be completely invisible.
Privacy is one of the most iconic themes in the current crypto cycle. With increasing global regulatory pressure and more powerful on-chain monitoring tools, a growing number of retail and institutional users are questioning whether public blockchains expose too much information about users and their transactions. Against this backdrop, privacy coins have risen from a niche market to a prominent category. This is why Zcash is poised to become one of the best-performing assets in the market in 2025.
History and Evolution
Launched in October 2016, Zcash was developed by Electric Coin Company (ECC), founded by cryptographer Zooko Wilcox-O'Hearn, and a team of experienced cryptographers. The project's roots can be traced back to a 2014 paper introducing the Zerocash protocol, co-authored by researchers from MIT, Johns Hopkins University, and Tel Aviv University. This paper theoretically proposed a protocol that would allow users to make private payments while maintaining processing speeds comparable to Bitcoin.
Zcash's core zk-SNARK cryptography technology did not originate with cryptocurrency; rather, it stems from decades of theoretical research in computer science. Electric Coin Company's contribution lies in translating this theory into a practical technology capable of efficient operation on real-world blockchains. In 2016, the team held a cryptographic setup ceremony to generate system parameters; subsequently, in 2018, a second ceremony called Sapling was held, significantly improving the efficiency of shielded transaction processing, making it sufficient for everyday use.
Zcash's governance structure comprises two organizations: the Electric Coin Company, responsible for protocol development and maintenance, and the Zcash Foundation, an independent non-profit organization overseeing the broader ecosystem. A portion of newly mined ZEC tokens is allocated to the operating funds of these two organizations, ensuring the project's continued development without relying on external investment.
Zero-knowledge proof
The core technology that enables Zcash's privacy protection is called "zero-knowledge proof." Specifically, Zcash uses a derivative technology called zk-SNARK (zero-knowledge concise non-interactive knowledge proof).
This concept may sound abstract, but its core idea is actually quite easy to understand. Zero-knowledge proofs allow one party to prove to another that something is true without revealing any specific information. Taking Zcash as an example, network nodes can verify whether a transaction is legitimate and valid (e.g., confirming that the sender does indeed have sufficient funds and has not forged tokens out of thin air), without needing to know who the sender and receiver of the funds are, or the specific transaction amount.
This technology represents a major breakthrough in the field of cryptography. While Bitcoin's open and transparent nature facilitates auditing and traceability, it presents a significant challenge for users seeking to protect their financial privacy. The Zcash development team cleverly superimposed zk-SNARK technology onto Bitcoin's code, thus providing users with an alternative layer of privacy protection.
Transaction type
The Zcash system contains two types of addresses: transparent addresses (t addresses) and masked addresses (z addresses).
The operating mechanism of transparent addresses is exactly the same as that of Bitcoin addresses; all transactions are publicly visible on the blockchain.
The shielded address exists in an encrypted pool of funds, and the sender, receiver, and specific amount of the transaction are all hidden from external observers.
The combination of these two addresses resulted in four different transaction types, each with a different level of privacy protection:
t→t (transparent to transparent): Completely public. The sender, receiver, and amount of the transaction are all clearly visible on the blockchain. This is no different from a standard Bitcoin transaction.
t→z (Transparent to Shielded): The amount of funds transferred into the shielded pool is public, but the recipient's information is hidden. It's like watching money being sent through a door: outsiders can see the money going in, but they don't know who ultimately gets it.
z→t (from hidden to transparent): The recipient and amount of the transaction are public, but the sender's information is hidden. The funds flow out of the crypto pool, but their original source cannot be traced.
z→z (masked to masked): Completely private . The only publicly available data on the blockchain is the transaction fee. The sender, receiver, and amount of the transaction are all completely hidden using cryptographic techniques.
In practice, historical data shows that the vast majority of Zcash transaction activity remains transparent. Due to regulatory compliance requirements, most cryptocurrency exchanges and institutional participants use transparent addresses (T addresses) by default. This means that the proportion of publicly readable data in Zcash transaction history is far greater than one might expect from a "privacy coin."
ZEC Trading Types
Tracking Zcash using Arkham
The conventional wisdom is that privacy coins are untraceable, but Zcash's actual situation has shattered this perception.
Currently, blockchain data analytics platform Arkham has successfully tagged more than half of Zcash on-chain activity and confirmed the identities of known individuals and institutions behind a staggering $420 billion in transactions . This is undoubtedly staggering for a blockchain network specifically designed to conceal transaction data. This tracking is made possible because most Zcash transactions still operate in a transparent manner. Furthermore, cryptocurrency exchanges, custodians, and large financial institutions, which act as conduits for funds, typically retain and use transparent addresses for ease of fund transfer and management.
Of course, the shielded transactions themselves remain highly opaque: z→z (shielded to shielded) transactions are untraceable, and such shielded addresses are simply marked as "SHIELDED" on the Arkham platform. However, the nodes where funds enter and leave the crypto pool are often publicly visible, which is precisely where data intelligence analysis can find a breakthrough.
Zcash on Arkham
Case Study: The U.S. Government's Zcash Holdings
One notable entity in the Zcash data records on the Arkham platform is the US government. The US government's wallet held Zcash seized from Alexandre Cazes, the founder of the darknet exchange AlphaBay, who was arrested in 2017. At the time of the seizure, the Zcash was worth approximately $737,000. For eight years, this asset remained untouched, and its market value has since more than doubled. The public can track the wallet's activity in real time through the Arkham platform.
Case Study: A Trade That Profited $6.6 Million
Arkham's data can also reveal large-scale fund movements by individual traders. For example, one address bought $4.49 million worth of Zcash during the market crash on October 10th. After holding it for five and a half weeks, the address transferred these tokens to the Gemini exchange. Assuming the trader immediately sold the tokens upon depositing them into the exchange, this transaction would have netted them $6.6 million, meaning a return of more than 100% on their initial investment. The complete historical record of this transaction is clearly visible on the Arkham platform, including the specific time of each fund transfer and the name of the exchange where the tokens ultimately ended up.
Arkham Visualization Tools
in conclusion
Zcash occupies a very unique position. It is both one of the most technologically sophisticated privacy-preserving tools in the cryptocurrency space and one of the most easily misunderstood projects. People often assume that privacy coins are completely untraceable by default, but this is inaccurate. In practice, the vast majority of Zcash fund flows pass through transparent addresses; and to comply with regulations, major exchanges also use publicly available transparent addresses by default. This is why blockchain intelligence analytics platforms like Arkham have been able to successfully link over $420 billion in transaction volume to known entities on a blockchain explicitly designed to resist data analytics.
However, this does not mean that Zcash's privacy protection capabilities are flawed. Purely shielded transactions (z to z) remain cryptographically unbreakable and cannot be spied on . All of this indicates that the actual level of privacy protection that Zcash can provide depends entirely on how the user chooses to use it.
For anyone looking to explore Zcash on-chain activity firsthand, Arkham's extensive data coverage offers the most comprehensive picture available. Users can track ZEC transaction history, entity identities, and account balances, set alerts for significant fund movements, and leverage Arkham's AI technology to delve deeper into the underlying information across the entire blockchain network.
