Jack Gavigan: Why is Zcash Appealing to Banks like JPMorgan and Blockchain Projects?
At the Genesis London blockchain conference held last February, Zcash COO Jack Gavigan discussed privacy in cryptocurrency, various projects that are currently implementing Zcash, and some of the major challenges Zcash may face in the long-term.
Since its launch in October 2016, within two-years Zcash evolved into a $1.1 billion privacy-focused blockchain network and became the 26th most valuable cryptocurrency in the global market. The demand for Zcash from both cryptocurrency users and blockchain developers has increased, and some of the biggest blockchain projects such as Ethereum have started to work closely with Zcash developers to integrate its unique implementation of Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (ZK-SNARKs), which remains as the core technology of the Zcash network.
Major wallets like Jaxx and Coinomi have integrated support for Zcash, allowing users to send and receive private transactions with ease. The interest towards Zcash has increased over time, primarily due to its ability to settle both private and public transactions on the main Zcash blockchain network. Not all transactions processed by the Zcash protocol are private. Jaxx for instance, enables users to send public transactions that are verifiable on the blockchain, providing transparency that may be useful in securing payments made to merchants, businesses, suppliers, and service providers.
“What we have now done through our partnership with JPMorgan is use Zcash technology previously pioneered in the open Zcash cryptocurrency to create protected and auditable transfer of token ownership on the JPMorgan blockchain."
The technology behind Zcash that allows the settlement of both private and public transactions appealed to leading blockchain projects and banks like Ethereum and JPMorgan. In October 2017, $370 billion banking giant JPMorgan introduced its permissioned blockchain network called Quorum, and announced that it has integrated Zcash as one of the core technologies of the permissioned ledger. At the time, Zcash co-founder Zooko Wilcox said, “What we have now done through our partnership with JPMorgan is use Zcash technology previously pioneered in the open Zcash cryptocurrency to create protected and auditable transfer of token ownership on the JPMorgan blockchain."
During an exclusive interview with Binary District, Zcash COO Jack Gavigan emphasised that the unique technology of the cryptocurrency has appealed to financial institutions such as JPMorgan because it is possible to be compliant with business requirements and regulations whilst processing private transactions.
“With technologies like this, it’s important for people who are exploring potential use cases to experiment with it.”
“The privacy and confidentiality technology that underpins Zcash is one of the most promising in terms of holding out the possibility of meeting the business requirements around keeping information confidential when it’s published onto a blockchain. So we’re seeing a lot of banks looking at this space very, very closely, carrying out experiments, getting hands-on with the technology so that they can understand it, and understand how it might meet their potential use cases or their requirements. And then with technologies like this, it’s important for people who are exploring potential use cases to experiment with it,” Gavigan told Binary District.
On April 30, the Japanese government and its financial services agency (FSA) requested local cryptocurrency exchanges to remove privacy-focused cryptocurrencies like Monero that can be used to fund criminal activities. According to Forbes, Japanese authorities were particularly concerned with Monero, given that every transaction on the Monero network is private and that the network does not allow some transactions to be transparent.
The blockchain of Zcash eliminates conflict between businesses and authorities, because businesses can decide whether to process private transactions or public transactions that can transparently verified on the Zcash network.
However, one criticism against Zcash has been the lack of integration of shielded addresses by wallets like Jaxx, or “optional privacy,” as cryptocurrency developer and researcher Noah Ruderman described. On the mobile wallet of Jaxx, users cannot send private transactions because the wallet has not integrated shielded address, a technology of Zcash that enables a transaction to be private.
Gavigan explained that there are two problems that need to be solved in order for mobile wallets to implement shielded addresses and ultimately allow users to send private transactions.
“The key obstacle is the computational power that is required to generate shielded transactions. It’s simply not practical right now to generate a shielded transaction on, say, a smartphone, within a reasonable amount of time.”
“Number one is that it involves a lot more integration because it’s a different set of technologies from the transparent transactions technology which is based on Bitcoin, but the key obstacle is the computational power that is required to generate shielded transactions,” said Gavigan. “It’s simply not practical right now to generate a shielded transaction on, say, a smartphone, within a reasonable amount of time. Now, the upgrade we’re rolling out later this year – the Sapling Upgrade – will make generation of shielded transactions a lot more efficient, and we’re hoping that we’ll start moving towards a situation where it will be practical to deploy shielded transactions on to mobile wallets.”
Not all blockchain networks are perfect, especially at this stage wherein cryptocurrency developers are solving problems that are unprecedented and were not encountered before. While Zcash is superior to other blockchain networks in terms of privacy and compliance, it struggles in scaling, mostly because the size of Zcash transactions is larger than the transactions of other cryptocurrencies like Bitcoin.
During his presentation at the Genesis London blockchain conference, Gavigan revealed that the size of Bitcoin transactions averages at about 300 bytes, while the size of Zcash transactions averages at around 2,000 bytes. That is nearly a 7-fold increase in size.
Currently, Bitcoin is processing more than 200,000 transactions on a daily basis, and as a result, its fees can spike up depending on the demand from the market, and user activity on the Bitcoin blockchain. If Zcash begins to process transactions in the range of 200,000 to 400,000 transactions per day like Bitcoin, it could struggle with scalability issues.
“Scaling and improving the ability to have high volumes of transactions on the blockchain is one of the key areas that we’re focused on. I think it’s a challenge that most blockchain solutions face.”
Gavigan noted that scalability is a major challenge Zcash has to overcome, and the development team at the cryptocurrency is working on scalability as one of the key aspects of the blockchain network that needs significant improvement. Gavigan stated:
“I think we definitely see scaling as a challenge to be overcome. We are iterating the technology and we’re improving on the technology. Scaling and improving the ability to have high volumes of transactions on the blockchain is one of the key areas that we’re focused on. I think it’s a challenge that most blockchain solutions face. In the enterprise world, there are alternative approaches. For example, restarting the blockchain periodically and archiving transactions. In the public space, I think we’re going to start seeing solutions like SNARKs potentially being used to solve these scaling problems.”
Considering that the demand for Zcash from both blockchain projects and financial institutions is there, the two problems the development team of the cryptocurrency will need to work on is scalability and adoption. Once these issues are resolved, it will be possible for Zcash to evolve into a major privacy-focused cryptocurrency.
The notion of complete separation between decentralised cryptocurrencies and traditional financial institutions’ management of fiat currencies has become blurred over the past few years. While JPMorgan is pursuing its own permissioned blockchain ledger which uses Zcash technology, a Swiss private investment bank is launching dedicated crypto custody solutions.
Zurich-based Vontobel bank is claiming to be the first financial institution in the world to offer a range of crypto services that comply with standards required by industry regulators and financial intermediaries.
Aimed at other banks and asset managers, Vontobel’s Asset Management and Digital Asset Vault tools offer the facilitation of crypto transfers, storage, and digital asset purchases.
Illustrations by Kseniya Forbender
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]