The Zerocoin protocol was created with privacy and anonymity in mind—both of utmost importance for blockchain technology and cryptocurrency enthusiast. It was proposed in 2013 by professor Matthew D. Green from Johns Hopkins University and his graduate students Ian Miers and Christina Garman. It was originally designed to improve anonymity for Bitcoin but it never ended up being implemented in the Bitcoin protocol.
The protocol uses a zero-knowledge proof method, which was recognized as a great opportunity for creating a cryptocurrency that will rely on the increased anonymity and privacy provided by it. The Zerocoin protocol-based decentralized cryptocurrency Zcoin (XZC) was created in 2015 as a part of an initiative to build an independent cryptocurrency.
Zcoin Cryptocurrency (XZC)
XZC is the first cryptocurrency to implement the Zerocoin protocol. However, aside from it, nowadays there are several cryptocurrencies that use zero-knowledge proof to ensure anonymity, including Pivx, ZCash, SmartCash, Monero, Zoin, and others.
Zcoin makes use of the Zerocoin protocol to supply anonymous transactions. The protocol initially planned to be an expansion of Bitcoin, permits you to send out coins with no transaction history. Bitcoin records the history of each transaction on a public ledger for anybody to see, whereas with Zerocoin the transaction history is deleted immediately.
The decentralized cryptocurrency XZC was officially launched on September 28, 2016, two years after a master’s student in Computer Security, Poramin Insom wrote a paper about implementing the Zerocoint protocol in a cryptocurrency.
When you want to send Zcoins, the transactions are recorded in a public ledger, a process identical to that of Bitcoin transactions. This protocol improves anonymity and privacy protection by destroying a coin and then minting new, clean ones, and erasing the transaction history. More specifically, with the Zerocoin protocol, your Zcoins are destroyed to mint a clean Zerocoin.
You are then able to make use of the Zerocoins in a transaction, which converts the Zerocoins back into Zcoins. With many people minting Zerocoins, it will not be obvious where the spent Zerocoins originated from. And this way your anonymity is guaranteed.
Thanks to the Dandelion protocol Zcoin is able to hide the sender’s source IP address, without using Tor (The Onion Router) or a VPN (Virtual Private Network). XZC was the first cryptocurrency to implement this protocol. Zerocoin was later on replaced with the Sigma protocol, which prevents counterfeit privacy coins from inflating the coin supply. To allow this, it removed the feature called “trusted setup” from the Zerocoin protocol, which was considered to be one of its biggest flaws.
In its beginning, Zcoin used proof of work for mining. This was eventually abandoned and replaced with a Merkle tree proof-of-work algorithm. This mining algorithm is more memory-hard, which is why it discourages the use of Application Specific Integrated Circuit (ASIC) in mining coins, which can lead to centralized mining farms. As a result, users can use their CPUs (central processing units) and graphics cards to mine. Powerful Nvidia (NASDAQ: NVDA) and AMD (NASDAQ: AMD) graphics cards are used for crypto mining so often that Nvidia actually released a GPU specifically designed for crypto mining.
Founded in 2013, the Zerocash protocol provides additional anonymity, while protecting the history of the transaction. It reduces transaction size considerably but is significantly more expensive in terms of computational requirements. Namely, it requires up to 3.2GB of memory to be able to generate. More recent developments in the protocol have reduced it further, to 40 MB.
To prove the integrity of the computations, Zerocash Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (also known as zk-SNARKs), a special type of zero-knowledge method. These types of proofs are less than 300 bytes long and can be verified in just a few milliseconds. An additional advantage they bring is hiding the amount traded. However, unlike Zerocoin, Zerocash requires an initial setup by a trusted entity.
To maintain their privacy Zerocoin transaction verifications rely on zero-knowledge proof. So, everyone interested in them should understand how this method works. Although the math behind it is complicated, in simple terms, a zero-knowledge proof is a method of verification in which one party can prove to another that a statement is true, without revealing additional details.
The Zerocoin protocol was born out of the desire to make it harder or eliminate the possibility of tracing transactions. Although it did have some flaws and is being replaced by alternatives that have found ways to address its issues, such as Sigma, the Zerocoin protocol has made a huge difference in the crypto world.