Monero v ZenCash

Monero v ZenCash In this post I will attempt to compare two privacy based cryptocurrencies, Monero and ZenCash. Disclsoure: I mine Monero and have bought ZenCash.

Monero and ZenCash both offer a value proposition as fungible, privacy based coins. Fungibility in cryptocurrencies is in fact inherently linked to privacy, because it is the knowledge of the history of a non private coin that makes it non fungible - for example, certain Bitcoins derived from a criminal enterprise could theoretically be “blacklisted” by for example exchanges and therefore they would have less value than other Bitcoins. At present this is mostly a theoretical problem, but it may become a real one with time.

Both Monero and ZenCash claim to be fungible. Monero is a much older coin, having originated in 2014, while ZenCash, which derives from source code finalized late 2016, is less than one month old. In this comparison of Monero and ZenCash, I ought to be upfront in saying that while I mine Monero, I have no faith in its long term prospects as a cryptocurrency, for reasons which I will explain in this post.

Monero, and ZenCash - and every other cryptocurrency - both have roots in Bitcoin. Monero introduces Mixin, whereby one’s transaction signature is mixed with multiple other transaction signatures. The default number of Mixin is 4, and the mandatory minimum is 2. If one’s own transaction is added, then there’s a minimum of 3, and a default of 5 signatures combined. The effect of this is the outside observer cannot determine which out of the three or five is whose signature. Clearly this is more private than Bitcoin, where the blockchain is completely public knowledge, and all transfers are publically stored on the Blockchain with the sender amount, receiver amount, and amount of transaction. The problem is there’s a growing body of software and expertise that can map network connections and with increasingly more effectiveness find relationships between participants in that network, even through a mixing process such as Mixin. It would obviously depend on how much resource one’s adversary would be willing to use, but my opinion is that all mixing processes can be compromised by a nation state level adversary.

Monero also has introduced a new feature called Ring CT which, in addition to Mixin's obfuscation through signature mixing, obfuscates the amount of the transaction. This is an improvement, because clearly hiding transaction amounts makes it even harder for an external party to trace transfers. That is of course if everything works according to plan. The problem is Monero has no funding mechanism to ensure everything goes according to plan. 100% of the block reward in Monero goes to miners, and so contributors auditing code, or just generally contributing to the project have no mechanism to get paid for their contribution. There do appear dedicated capable programmers willing to donate their time free to Monero development, who appear idealogically motivated to promote to a voluntary-ist privacy enhanced cryptocurrency. The problem is, that’s not enough for sustainable long term development.

The Ring CT protocol Monero uses disastrously bloats the blockchain, and Monero had scaling issues before, now it has enormous scaling issues. Monero’s scaling issues make Bitcoin’s scaling problem look like a picnic in the park. And the cold reality is there is no way volunteer only coders, and community members will solve such a fundamental and complex issue, or the many others that cryptocurrencies are inevitably faced with.

ZenCash on the other hands uses a zero knowledge proof of work algorithm known as zkSNARKs and is based on source code finalized in late 2016. In zkSNARKs no mixing occurs, because there is zero knowledge, there is nothing to mix. The sender’s address, the recipient’s address and the amount transferred are all unknown. This provides a considerably higher level of privacy than Monero. A second advantage of ZenCash is that while it may face scaling challenges going forward, they are nothing like those of Monero - Monero’s scaling issues are almost off the Richter scale.

ZenCash has superior privacy to Monero, and this is one of its advantages. However, another of its advantages is that it has a clear and sensible funding model to facilitate its ongoing development. Unlike Monero, that allocates 100% of the block reward to miners, ZenCash allocates 88% of the block reward to miners. The remaining 12% is shared 8.5% for the DAO and core team to fund development, outreach, and partnerships, and 3.5% is reserved for secure nodes. Anyone who has watched Dash and the - presently few - other coins that have learned from and implemented evolutions of its funding model knows how important a development funding system is to drive development and innovation, marketing, and over time rising prices. I view ZenCash’s funding as a very good balance of competing interests, and likely to drive the coin’s development and value.

Monero does have advantages over ZenCash. There are two primary ones I can think of. Firstly, Monero’s mining algorithm CryptoNote makes CPU mining more competitive. This is of enormous benefit to hackers and botnet operators, because many of the computers they compromise won’t have dedicated GPUs and so they must have a coin that allows competitive CPU mining. A second advantage of Monero over ZenCash is that it is currently accepted at one or two Darknet markets. So I suppose if one wanted to privately buy one’s drugs - and I’m deliberately not mentioning more objectionable products purchasable on Darknet markets - one could use Monero and it would be fairly private - apart from the package that one presumably gets in the mail containing said drugs, which would be a little less private. ZenCash by contrast is in its infancy and can’t be used anywhere.

These advantages aside - and the only enduring one I can think of is that Monero’s CryptoNote allows competitive CPU mining - I strongly recommend against investment in Monero. Its marketcap is about $730 million as I write, but in the last couple of months as the cryptocurrency market has exploded it has underperformed. ZenCash is worth at present I believe less than $15 million in market cap. One thing I like about this is that buying a coin with limited marketcap limits downside risk, which despite the extraordinary rises of last two months is in my view essential to always keep in mind.

I mine Monero because CPUs can mine it competitively. However, I’ve always sold, and never regretted that decision as I’ve swapped into coins that grew in value more quickly. For all I know Bytecoin, which uses the same mining algorithm as Monero, is better value to mine. It used to be worth less than a 10th of Monero. But now it’s almost as valuable as Monero. Anyway, I don’t have time to change my mining set up at this point, so I will continue to mine and sell Monero.

When it comes to making capital allocations in crytpocurrencies, we are all ultimately answerable to ourselves, and must make our own decisions with as much information as possible. What I have written here are the views of one man. In my case, I cannot imagine buying Monero. I have, and would again, buy ZenCash at its present price around $6.70 a coin.