The Privacy Imperative: Zcash and the Future of Digital Money

Transcript

Zuko, thank you for for being here. How are you doing today? >> Uh good. Yeah. >> Good. Um I wanted to say at the outset, you know, I think I have uh some understanding of what it takes to have conviction in an idea and see it through uh through various uh ups and downs, but it's nothing like uh what you have been through with the Zcash over time. And I just wanted to say, you know, thank you for your conviction. It's an important piece of technology and I think moving us uh forward uh in uh uh the direction of more individual liberty. Uh so, thank you for uh for that work over time.

>> Thanks for saying that, Zach. >> Um well, I think it's fair to say that the Zcash is having something of a renaissance. Um uh you know, there's a it's been an important piece of technology since the beginning, but more and more attention coming to to Zcash. What do you think explains this? I I may have my own take, but I'd be curious your take. What explains this sort of uh awakening of of uh the broader public, the broader investor uh base to Zcash today? >> That's a tricky question because uh success has many fathers, but failure is an orphan. So, now now that Zcash is uh so valuable, there's a lot of different stories you can tell, each of which is partially

true, about different things that helped it. Like uh there was the Zashi wallet that came out about oh, 2 years ago and that made it very, very usable, right? Like easy, simple, uh intuitive. And that's huge. Um but the one thing that I think would lead to all the other things is the Zcash dev fund. There's a thing called the dev fund, which is that Zcash is self-funding. So, for the 10 years that it's been uh laboring in obscurity, it had the fuel to keep going the whole time.

And that led to all these other developments that then came together. And I guess at the same time I want to say the world has also changed during those 10 years. So I don't know, there's a lot of different reasons. It all came together and a big part of it is probably just people need it or realize they need it more now than they realized 10 years ago. >> I think that's certainly our perspective partly. I'd like to talk about the the dev funding a little bit but for what it's worth the Grayscale perspective would be that new technologies create new pressures on financial privacy, computers in the middle of the 20th century, the internet and online banking in the 1990s and now AI creating new pressures on privacy in

general, financial privacy. I think giving people more attention to these topics. I think that's one thing that's brought the lens back to to Zcash. I'd like to build on the point about developer funding. You know, Zcash has similarities to to Bitcoin one of which is a 21 million coin cap. It is a scarce digital currency but it has important differences from Bitcoin as well. One of which is developer funding. Can you explain this mechanism a little bit for people that are not familiar? How does that work in terms of the the blockchain functioning?

And what is it meant for keeping this culture of innovation going, preventing the system from ossifying as we've seen in some other places? >> Right, that's the right question cuz I can explain the the finance and the blockchain mechanisms but it's really a cultural thing that the Zcash community diverged from Bitcoin right away in the initial like launch 10 years ago whereas Bitcoin has the culture of ossification for like purity and prevention of corruption.

Their approach to prevent corruption is ossification. And Zcash instead from the get-go chose a culture of like growth and evolution instead as a way to prevent corruption. Um and that came with 20% of the newly issued coins going to development or and and 80% going to the minor. So, that's also another huge difference from Bitcoin where 100% of the new coins go to the minor who mined that block. Does that answer your question?

>> and I think this little bit goes a long way. You know, constantly funding the development of of a chain and creating this a culture of innovation. Let's talk about one recent example. So, Zcash went through a pretty big transition this year. Zcash has a privacy preserving features of course through shielded pools and there's been a few different pools over time. This year we went through a particularly important shift from the orchard pool to the ironwood pool. Maybe first can you tell us, you know, how did we get there?

What what were you looking at, you know, what were you thinking about that motivated you know, this this process in the first place? >> Okay, the shift from the the orchard privacy pool to the ironwood privacy pool was a crisis intervention moment because we had discovered a counterfeiting vulnerability which would allow an attacker which would have allowed an attacker to generate counterfeit Zcash if they had found it first.

So, that was Okay, so rewinding in about I think February or so of this year we realized that AI was getting so good that AI was about to start finding all the bugs in all the software on the internet. And so we launched this kind of like emergency crash course of getting the best security researchers and giving them the best AI uh so they could find the bugs before like the government of North Korea did. And we succeeded at that. We outpaced the bad guys. We we got access to like the best AIs.

just before uh the American government banned the best AIs from public use and stuff like that. And the effect was we found this critical bug that would have destroyed basically everyone's savings and like 20 30 billion dollars worth of savings. Found it first and did this emergency process to fix it before any bad guys could take advantage of it. And then that resulted in a new shielded pool, to answer your question. So then we Well, then it gets more complicated, but we invented a way to prove to people that the bug had not been exploited, which is like a little bit mind-boggling because we

see this kind of thing happen in crypto many times, right? There's often been exploits and like drains and hacks of all kinds. And with Zcash, because there's this strong privacy, you can't trace anyone's coins, so you can't trace back and see where they came from. Therefore, you can always have skepticism or suspicion that Zcash has been counterfeited and that the monetary supply of Zcash is is actually fake. And so we came up this summer, we came up with a scientific advance by which we created a new pool of Zcash coins and made a formal mathematical proof that

this pool cannot have any bugs of that kind in it. This ability to prove the absence of bugs is new. Um AI is new this year and this scientific uh tool of proving that there aren't any bugs is also new this year. And Zcash is one of the first things to use this uh to prove that that previous bug that we found and fixed cannot recur in the new version of Zcash and to prove that nobody else found it and exploited it in the past.

>> Look, I I love this uh story. I think people hear the word uh bug with open-source software and it uh you know, creates concerns or something, but to me this is exactly the the type of thing that you want to see and is such a uh strong endorsement for the Zcash culture of innovation, using advanced AI tools to search for a problem uh before you uh before a problem occurs, uh fixing it, disclosing it to clearly coming up with a transition plan, and that in that new uh shielded pool, again using advanced uh AI to use formal verification to prove that these uh can't happen again. I mean, to me it's a great uh example of uh of a success.

>> Formal verification is that new scientific technique to prove that a code base does not have any bugs, which is just mind-blowing. Like the for the first 50 years of computer science, it was a constant battle against bugs and the bugs were usually winning. Until this year, for the first time ever, we can prove the absence of bugs in substantial code bases. It's crazy. >> Let's talk about something else I think that is uh forward leaning with Zcash, which is quantum uh readiness. Um there's an element uh of the Iron Wood pool story I hear with quantum recoverable addresses, a project epoch that you announced uh recently. Can you give the the audience a sketch of how you're thinking about this topic, how Zcash is leaning in uh for a potentially

post-quantum future. >> Right. Um there are a bunch of different organizations that support Zcash. Um and my the one I work for, we're pretty uh obsessive about security. We were the ones who found that bug this summer and so forth. And so now we're obsessed about the risks of quantum computers, but worse than that, also the risks of AIs getting smarter and smarter and learning how to uh break cryptography. That's the two um unknowns of the of the coming years. So, we have launched this project called Project Epoch to make future-proof cryptography, cryptography that um

we have solid reason to believe neither quantum computers in the future nor the AIs of the future would be able to break this cryptography. And it's another kind of like ambitious scientific research attempt. Like I think we'll do it, but but but but frankly, it's uh probably one of the first times something like this has been attempted. >> It's a big uh undertaking, post-quantum cryptography, of course, and um you know, I think there's still some uh discovery that needs to happen to find all the right applications, but I think um another example of how Zcash is sort of leaning into these challenges, not waiting for the problem to arise, uh being forward-looking and and trying

to deal with them uh head-on. I'd like to talk about another uh feature of of Zcash that I think is particularly cool, which is coin holder of voting. You know, it's uh again something quite different than what we see in other ecosystems. Can you explain what how coin holder voting voting uh works, uh the role of shielded Zcash, and how it informs network changes? >> Yeah. So, Zcash is like Bitcoin and like Ethereum, it's a fully decentralized open source peer-to-peer network that's running on all these computers around the world by all these different people.

And like Ethereum, but unlike Bitcoin, we collectively agree every year or so to everyone upgrade their software to add new improvements to Zcash or new security fixes and stuff like that. And over the last several years, we've deployed better and better uh uh user experience. So, if you own Zcash coins, you can anonymously on chain vote for which improvements we should all deploy together on the network. And it's not a binding vote. We're not necessarily All the other users are not necessarily going to do what you say, even if uh you vote in favor of a thing. It's really up

to them what software they run. But, it's really cool that uh Zcash holders can with complete security and anonymity signal which improvements to Zcash they value the most. >> I I quite like coin holder voting, but partly it's kind of like voting in our normal political system. You're not exactly sure how it's going to all add up to everything in the end, but you want your voice to be heard or you want your vote to be counted. And I appreciate that if you're engaged in this community, at least my vote is uh counted. I wish I could do this in a few other ecosystems as well. At least to have the opportunity to express my view on some of these key changes.

I I want to touch on one last element of sort of innovation and and differentiation of of Zcash, which is around sustainability. So, in the Bitcoin blockchain, we have this 21 million coin cap. We have a 21 million coin cap in Zcash's case as well. But, in Bitcoin, there is always this a question of what happens when we get to 21 million. And it's far away, and so we don't worry about that that too much today. But, it is this open question. How do we make that system sustainable? Uh but Zcash again is sort of looking ahead to these challenges, you know, thinking about long-run sustainability now, whether it comes to AI, cybersecurity risks, quantum readiness, but also sustainability. So, can you

talk a little bit about how that mechanism works in the case of Zcash, how the network has built in the sustainability mechanism that is different? >> Yeah. Um this is another product from my company. My company's called Labs, by the way, uh makers of fine Zcash technology. Um this was called this this invention is called the network sustainability mechanism, and it's a combi- combination of these two really good ideas from Bitcoin and from Ethereum. So, Bitcoin has this really great idea, which is there's a 21 million cap, so everyone knows that there's a limit to how many Bitcoins there can be. It's a very, very simple rule. Everyone knows the rule. Um that it's a fantastic idea. Now, Ethereum has a different good idea,

which is it's called EIP 1559 in Ethereum protocol, but it's that whenever you make an Ethereum transaction, some of the transaction fee that you paid gets burned. And burning of fees is the long-term sustainability of the network because you need to issue more coins. Both Ethereum and Bitcoin and Zcash are all um like coin-operated machines where you you you get more service out of it, and people can use it because the miners and the validators are getting paid to run it, right? And there's a like Zach says, there's an open question of what happens when you like you've spent the last coin in Bitcoin, uh you can't issue more cuz that would break the 21 million promise,

um but the thing doesn't make forward progress unless you issue more. So, in Zcash, we have this uh combination of the two where fees of whatever kind get burned and then you can always issue more Zcash in the future as long as it doesn't exceed the 21 million cap. Um so it has that nice simplicity unlike Ethereum where I can't even understand what the actual number of Ethereum will be in the future in different cases. It's very It's very sophisticated mathematical argument for what the supply of Ethereum will be. But in Bitcoin and Zcash it's very simple.

21 million ever. Um and in Zcash we have a few reasons to claim [snorts] that we'll be able to keep it going indefinitely. >> I love it. Um what I wanted to get across with the these uh questions was kind of a simple uh point that uh Zcash is is different than Bitcoin of course in in some uh key ways. Number one is with privacy preserving uh features. >> Oh yeah. And there's that. >> Uh I think I think I hesitated to lead with that. I think people know that. You know, these are um two different uh digital currencies but Zcash brings privacy preserving features. That's a key reason uh why it's getting so much more attention. Uh what I wanted to kind of bring to light in this conversation was there's lots of other ways in which uh Zcash is

differentiated uh from Bitcoin. And when I look at it uh to me it's really centered on this culture of innovation, kind of thinking about uh the future. How do we prepare uh for whether it's cybersecurity vulnerabilities or quantum or or sustainability, kind of leaning into these uh challenges early. And with economic mechanisms uh like a developer funding to keep those uh things like going. To me this is a key differentiation and maybe something that's going to become increasingly important uh we will see uh over time. I want to ask you one other uh question while while I have you here, which is maybe the putting Zcash aside for a second but talking about privacy uh more more broadly. You know, you've been working on this privacy project uh for a long time and thinking about questions of of

individual uh liberty. You know, when you think about the future, you know, what what do you want to see? You know, what what does success look like in terms of preserving some of our personal autonomy and privacy in the future? >> Yeah, when I think about that, it's it's both things in my mind. There's there's just like personal human dignity, like you're not being scrutinized or manipulated. You have privacy. You get to consent to when you're exposed and when when you're not. That's just really important fundamental human nature. And at the same time, I really think that privacy is necessary for a functioning economy.

as privacy is being eroded very dramatically throughout the world in the last like 20 years or so. And in my opinion, that makes your economy more and more vulnerable to being exploited by whoever has the the the power or the ability to start sort of pushing their way around and manipulating everyone else. So, um based on whatever I've read and and and and and my perspective on life, you really need privacy not just for natural human rights and to feel normal and like have a normal human existence, but you also need it to have a flourishing diverse

economy where there's the possibility of growth and change, um political change, and just the the normal way that human civilization has always worked. >> It seems like a pretty foundational element of our traditional financial system. It seems to me it'll be a pretty foundational element of our new decentralized blockchain-based financial system. Zuko, thanks so much for bringing Zcash to the world and and bringing us this important technology and for sharing your views today. >> Thanks, Zach.