Zcash Privacy Coin Unveiled: Over 50% of Transactions Traced

Summary: A recent report by blockchain intelligence firm Arkham reveals that more than half of Zcash transactions can now be linked to identifiable individuals and institutions, raising questions about the cryptocurrency's privacy claims. This article explores the implications of these findings and includes a proposal for Zcash’s fee structure changes in response to network congestion.

Key Takeaways

Arkham claims to have linked over 53% of Zcash transactions to identifiable parties, despite its reputation for privacy.
Critics assert that Arkham misrepresents its tracking capabilities for truly private transactions.
Zcash developers are proposing to change the fee structure from static to dynamic to improve network efficiency.
Institutional interest in Zcash is growing, with significant investments from notable entities.

Privacy Coin Zcash Exposed – Half of All Transactions Now Tracked

Arkham's Tracking Claims

Blockchain intelligence company Arkham has announced that over 53% of Zcash transactions, amounting to around $420 billion, can now be associated with identifiable users and organizations. This revelation contradicts Zcash's image as a privacy-oriented cryptocurrency.

Arkham's new tracking abilities encompass both shielded and transparent transactions, resulting in 48% of transaction inputs and outputs, along with 37% of total balances—approximately $2.5 billion—being linked to specific entities.

The news stirred immediate backlash from the crypto community, with accusations directed at Arkham for making exaggerated claims regarding their ability to monitor genuinely private transactions.

Zcash founder Zooko Wilcox addressed the situation by stating that Arkham “didn’t actually deanonymize any ZEC held in the shielded pool,” asserting that such tracking remains “impossible because the necessary information isn’t available.“

Industry Pushback on Tracking Methodology

In response to Arkham's claims, several blockchain developers highlighted the fundamental limitations of tracking shielded Zcash transactions. They pointed out that Arkham could only trace transactions between transparent wallets and movements from or to shielded wallets.

Fully shielded transactions are protected by zero-knowledge proofs, rendering their deanonymization impossible.

Mert from Helius Labs criticized Arkham’s announcement as a “scummy clickbait title,” alleging that they included references to shielded transactions solely to attract clicks, despite not being able to track such actions.

Saad El Kouari from AWB remarked that Arkham failed to identify major holders in the ecosystem, such as Grayscale and the Electric Coin Company, illustrating the platform's inability to trace significant wallet activities.

New Fee Structure Proposal to Enhance Network Efficiency

In addition to privacy concerns, Zcash developers are advancing a separate initiative to reform the network's fee structure.

Shielded Labs introduced a comprehensive plan suggesting a move from fixed fees—initially set at 10,000 zatoshi and later lowered to 1,000—to a dynamic system based on median transaction activity within 50-block intervals.

This proposal aims to address recurring issues with “sandblasting” spam that has previously overwhelmed wallets and congested the network under the old fixed-fee model.

An earlier proposal, ZIP-317, recommended a new accounting approach that treats each transaction component as an independent “action,” thereby fixing potential misuse while ensuring low, predictable fees despite changes in network traffic.

Developers noted that ZEC’s recent price rise and growing institutional interest have made the existing fee mechanism unsustainable. Users have experienced situations where shielding small transactions incurs fees equivalent to double-digit ZEC amounts.

The dynamic fee model proposes a stateless system employing “comparables” to set standard fees, maintaining privacy protections.

During periods of high network stress, a temporary priority lane at ten times the standard fee would allow users to compete for block space without necessitating protocol alterations that might jeopardize Zcash’s privacy features.

Growing Institutional Interest in Zcash

Zcash saw a nearly 5% increase today, with trading surpassing $400, greatly outpacing the broader market trends.

Privacy Coin Zcash - Zcash Price Chart

In the previous month, Zcash gained notable institutional attention, with the Winklevoss twins' treasury vehicle acquiring 200,000 ZEC since November, valued at over $80 million, with aspirations to secure around 5% of Zcash's circulating supply.

Similarly, Reliance Global recently liquidated its other digital asset positions to focus exclusively on Zcash.

Grayscale has also submitted a request to regulators to convert its existing Zcash Trust into a spot ETF linked to the CoinDesk Price Index, possibly creating new access points for institutional investors.

Currently, the portion of Zcash supply held in shielded addresses has risen to about 30%, up from 10% on average in 2024, according to Grayscale Research.

Looking ahead, Carter Feldman, Founder and CEO of Psy Protocol, remarked to Cryptonews that there is a rising demand for on-chain privacy, stating, “This demand is not just at the base layer but also stems from the emergence of new blockchains designed to preserve privacy in smart contracts, like Psy, Miden, and Aztec.”