Editor's Note: Stablecoins, on-chain payments, and AI are simultaneously transforming the financial system. On the one hand, capital flows are becoming faster and more transparent; on the other hand, the combination of public ledgers, address labels, and AI analysis tools is making account balances, transaction counterparts, and business relationships easier to continuously track.
In this context, Grayscale Research has brought Zcash back into the spotlight for investors. It focuses not on whether "privacy coins are experiencing a new round of hype," but on a more fundamental question: as the traceability of digital finance continues to increase, will privacy remain a niche demand or once again become a core attribute of money?
Grayscale researcher Michael Zhao stated in the report that AI may drive financial privacy into a third wave of attention after the digitization of banking and the widespread adoption of the internet. Zcash has been operational for nearly a decade, and recent improvements have been made to shielded transactions, wallets, and mining infrastructure, but its market share remains relatively low. If the market begins to reprice privacy, ZEC may receive a valuation reassessment.
This is still a set of investment logic with a clear stance. Whether AI will significantly increase the demand for privacy coins, whether the shielding function can translate into sustained use, and whether trading platforms and regulatory bodies are willing to support such assets have yet to be validated. The opportunities and risks of Zcash precisely stem from this significant gap.
Below is the translation of the original article:
Financial privacy is not an additional feature of money but an integral part of its normal use.
Cash inherently possesses this attribute: transactions are not automatically made public to everyone. In the banking system, individual accounts and fund transfers are also typically not directly accessible by the public, and law enforcement agencies usually need to go through legal procedures to obtain relevant information.
Technological advances continue to alter this balance. In the 1970s, the digitization of financial records and the implementation of the U.S. Bank Secrecy Act triggered a new round of discussions about financial privacy; after the popularization of the internet and online banking, the risks of data breaches and online surveillance further drove encryption, two-factor authentication, and other security tools into the mainstream.
Grayscale believes that the development of stablecoins, blockchain applications, and AI may lead to a third round of discussion on financial privacy. Especially on public blockchains, AI can combine addresses, transaction records, wallet behaviors, and counterparty information to consistently identify on-chain users who were originally only pseudonymous.
Under this assessment, the value of Zcash lies not only in a cryptographic function but also in its potential to become "private digital cash" beyond a public ledger.
Bitcoin Solved Digital Scarcity, But Not Transaction Privacy
Bitcoin established verifiable digital scarcity through a public ledger, but this transparency has also limited its use in certain payment scenarios.
Balances, transaction recipients, and historical records on a public blockchain can be permanently retained. Even if users utilize addresses that do not directly reveal their identities, exchanges, transaction counterparts, wallet behaviors, and on-chain analysis tools may gradually link them to real-world identities.
This not only impacts individual users. Businesses typically do not want their suppliers, payroll expenses, fund disbursement, and customer relationships to be instantly known by competitors; institutions may also be unwilling to disclose wallet structures and transaction strategies. Therefore, financial privacy is not equivalent to complete anonymity but more often just the confidentiality required for normal business operations.
Zcash shares a similar currency structure to Bitcoin: a total supply cap of 21 million coins, proof-of-work mechanism, and peer-to-peer value transfer as its primary use case. The most significant difference lies in the fact that Zcash allows users to choose whether to disclose transaction information.
Zcash supports two types of transactions:
1. Transparent Transactions: Sender, receiver, and amount are public, resembling Bitcoin's transaction model;
2. Shielded Transactions: The network can verify the transaction's validity without disclosing the sender, receiver, and amount.
Its underlying tool is zero-knowledge proof, allowing users to prove that a transaction complies with the rules without revealing the raw information used for verification. The network can confirm that the payer has the authority to use the funds, the pre- and post-transaction amounts balance, and no new coins are created out of thin air, all without seeing the specific transaction details.
Zcash also supports selective disclosure through view keys. Users can open up part of their shielded transaction history to auditors, counterparties, or other designated third parties. Therefore, Zcash's design does not aim to make transactions permanently opaque but rather transfers the information disclosure power from the public ledger back to the user.
A Decade of Tech Running, Availability Remains the Real Bottleneck
Zcash was launched in 2016 and was one of the earliest projects to attempt to apply zk-SNARKs directly to a base-layer cryptocurrency. However, the primary issue it faced in its early days was not whether private transactions could be achieved but rather the high cost of usage.
The initial shielded transactions required lengthy proof generation times and significant memory, making it challenging for regular wallets and mobile devices to provide a smooth experience. Subsequent multi-phase upgrades focused mainly on lowering these usability barriers:
The Sapling upgrade in 2018 significantly reduced the time and memory required for shielded transactions;
The NU5 upgrade in 2022 introduced the Orchard shielded protocol and Halo 2, eliminating the new shielded pool's reliance on trusted setups;
Unified addresses improved the interaction between transparent and shielded addresses;
The Zond wallet began supporting cross-asset swaps, cross-asset payments, and shielded balance cold storage, aiming to keep users in a private state throughout the entire transaction process.
The mining infrastructure has also expanded. In March 2026, Foundry announced the launch of a U.S.-based Zcash mining pool targeting institutions and publicly listed mining companies, providing the network with more standardized operations and compliance support.
Grayscale believes that these changes may indicate Zcash is entering a new stage of development. However, wallet features and mining pool expansion only indicate infrastructure improvement and do not directly prove a large-scale increase in end-user demand.
What comes next is more critical: "Can privacy scale?" Tachyon aims to reduce the computational and synchronization costs of shielded transactions; Crosslink focuses on improving transaction finality and network reliability. If the shielded asset proposal advances again, Zcash's privacy features may also extend from native ZEC to other assets.
Most of these projects still involve complex technical development and network coordination, and their timelines and actual effects are not fully determined.
Is 90% Shielded Transaction Volume Enough to Prove Real Demand?
Grayscale's core evidence comes from on-chain usage.
As per the report's scope, as of July 20, 2026, shielded transactions accounted for approximately 90% of Zcash's transaction count; there were around 4.2 million ZEC in the shielded pool, equivalent to about 25% of the circulating supply at the time.
This indicates that the privacy feature has moved beyond the product narrative layer and has manifested as observable on-chain behavior. However, the relevant data needs to be interpreted with caution: different data platforms have varying methods of categorizing "shielded transactions," different statistical dates, and whether they consolidate multiple shielded pools, leading to potentially different percentages from external data sources. An increase in shielded transaction count does not necessarily equate to a synchronous increase in user count, payment volume, or economic activity.
Grayscale's true bet is not on Zcash's current widespread adoption but on the market's potential future reassessment of the value of privacy. As of July 2026 data used in the report, the Grayscale-delineated "digital currency" crypto segment's total market cap is approximately $14 trillion, with Bitcoin representing around 90% and ZEC's market cap at around $8 billion, accounting for about 0.6% of that segment.
The report has thus constructed a scenario calculation: if ZEC were to capture 5% of this segment's market share in the future, leading to a market cap of around $700 billion, roughly 8.75 times its then market cap, rounded up to about 9 times.
This is not a target price and does not imply that Grayscale expects ZEC to inevitably increase 9-fold. It is merely a sensitivity calculation based on changes in market share, assuming that the total market cap of the digital currency sector remains unchanged, and that ZEC's supply and competitive landscape undergo no major changes.
More precisely, Grayscale believes that the current valuation reflects the expectation that "privacy will remain on the fringes of the market." If investors in the future are willing to consider privacy as a fundamental attribute of digital assets, ZEC's lower market share may offer valuation flexibility.
Rising Privacy Demand Does Not Guarantee Zcash's Benefit
This investment thesis first faces regulatory and distribution risks.
Zcash's view keys can assist users in disclosing transaction records to specific parties, providing a tool for compliance audits. However, the information is still user-selective and does not equate to the default traceability of a public blockchain. Meanwhile, the Financial Action Task Force (FATF) continues to require virtual asset service providers to perform customer due diligence, maintain records, report suspicious transactions, and adhere to the "travel rule."
Therefore, selective disclosure can reduce some compliance friction, but cannot guarantee that exchanges, custodians, and regulators are willing to support shielded transactions. The stronger the privacy protection, the more likely ZEC will face restrictions in listing, custody, wallet integration, and fiat onramp/offramp processes.
The second risk comes from protocol security.
In 2026, developers discovered a soundness vulnerability in the original Orchard circuit, which could theoretically be exploited to create undetectable counterfeit ZEC. The issue was addressed in NU6.2 by fixing the relevant circuit. Subsequently, the introduction of the Ironwood shielded pool further restricted funds from entering the old Orchard pool. A fund migration mechanism was implemented to restore the shielded supply integrity verification.
It is important to note that this is a theoretical vulnerability and does not mean that ZEC has actually been counterfeited. Ironwood has enhanced the future security structure, but the old shielded pool and its fund migration still pose legacy risks that require ongoing monitoring.
Quantum computing presents a longer-term challenge. The mechanisms introduced in Ironwood help preserve a recovery path for future quantum resistance, but the official technical proposal explicitly states that this change itself does not grant Zcash full quantum resistance.
Lastly, there is execution risk. Zcash's investment thesis still relies on improving wallet experience, protocol scalability, and ecosystem distribution synchronously. Any upgrade delays, coordination failures, or lack of user adoption could weaken the narrative of "privacy at scale."
The Next Step Is to See If Privacy Becomes a Need Rather Than Just a Topic of Discussion
Zcash's bullish thesis does not require it to replace Bitcoin. Grayscale's bet is on another possibility: as on-chain fund flows become more transparent and AI analytics capabilities continue to advance, the market may begin to assign a premium to "verifiable but not public" digital currency transactions.
To validate this assessment, what needs to be observed next is not just whether ZEC's price continues to rise, but several more specific indicators: whether shielded pool funds and real users continue to increase, whether wallets can reduce the usability threshold of the complete private transaction process, whether upgrades like Tachyon can be successfully implemented as planned, and whether exchanges and custodians expand rather than retract their support.
If privacy usage grows but liquidity and compliance channels continue to deteriorate, Zcash may still struggle to capture a larger market. Conversely, if usage, infrastructure, and market access improve in synchrony, ZEC may transition from being an "established privacy coin" to a pricing tool for digital financial privacy demands.
The current valuation discount of Zcash fundamentally corresponds to not a fully validated growth story but an option that has yet to be fully confirmed: in the AI era, how much will financial privacy be worth?
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