Zcash: A Tax-Advantaged Option For Privacy-Focused Crypto Enthusiasts

“I think we’re entering an era where there’s going to be a competition of monies. Because of the printing of fiat money and the depreciated value. There will be a competition of money and Bitcoin is part of that competition but they’re will be many monies.”

That was famed investor and asset manager Ray Dalio during his recent appearance on the Lex Fridman podcast. I happen to share this view with Ray and it’s why I’ve covered numerous different cryptocurrencies on Seeking Alpha. I take the view that one of the core use cases for just about any cryptocurrency should be as a medium of exchange. Because of that, I see potential competition for Bitcoin (BTC-USD) when it comes to on-chain transactions. Now, I know crypto can be an unnecessarily dogmatic discussion for some, and that’s just not how I view the space. I like Bitcoin. I have more of it than any other crypto asset. But I do like other assets as well. And Zcash (ZEC-USD) is the one that I’m, frankly, the most excited about at this time. In this article, I’ll detail why I see a need for Zcash and why I think Grayscale’s Zcash Trust (OTC:ZCSH) is an option to get exposure to the idea.

What is Zcash?

Zcash is a cryptocurrency founded by cyber security expert Zooko Wilcox-O’Hearn. Zooko is considered to be a Cypherpunk and previously worked for DigiCash. As far as cryptocurrency founders go, Zcash has a hall of famer on the mound.

The currency utilizes a zero-proof blockchain technology called zk-SNARK which is an acronym for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.” What zero-knowledge proofs enable is information verification without revealing everything in the transaction. This zk-SNARK cryptography makes it possible to transact over the blockchain network without revealing the sender or recipient of the funds.

The Zcash network allows for transparent wallets or shielded wallets. They are entirely compatible and up to the user’s discretion. Zcash wallets have the ability to transact between transparent addresses, from a transparent address to a shielded address, from a shielded address to a transparent address, or between shielded addresses for full privacy.

Why Should We Care About Privacy?

On a recent podcast episode with Lex Fridman, Ray Dalio was talking about his views on Bitcoin. He made headlines for suggesting that Bitcoin won’t reach $1 million per coin. While that’s certainly a justifiable opinion in my view, I found Dalio’s Bitcoin and gold comparison to be more interesting. The reason why Dalio chooses gold:

“Gold is still my favorite because of certain qualities. For example, you can’t trace it. In Bitcoin, you can trace who owns it, where it’s going, and so on.”

Privacy is freedom, pure and simple. Ray Dalio sees the issue with Bitcoin as a medium of exchange or as a store of wealth if one values privacy. I remember the days when the narrative around Bitcoin was that it was just for criminals to buy drugs and guns on Silk Road. We know better now. People can use Bitcoin for remittances and cross-border settlements. It doesn’t mean those who are doing those transactions are criminals. The same logic applies for Zcash. People who want to shield their payment activity aren’t guilty of a crime simply because they don’t want the whole world to know what they’re doing.

Here’s an analog to hammer home the point; a few days ago I went to the grocery store to buy a couple of things that we needed in the house. Because of our rewards membership with this grocery store, my wife got an email with a digital receipt after I used our card. She knew what I bought and how much I had spent nearly instantly. What if I was trying to surprise her with a gift and forgot that my entire visit would be tracked? She’d have found out and the surprise would have been ruined. Was I doing something nefarious? No. But privacy would have been crucial regardless. Now pretend that this rewards platform isn’t in a…