Analysis of Zcash's Rise, Growing Shielded Usage, and the Driving Factors Behind It

Author: Tanay Ved

Translated by: Blockchain in Plain Language

Public blockchains like Bitcoin have introduced a new, intermediary-free way of transferring value, using publicly verifiable ledgers where transaction activities are visible to anyone. However, the pseudonymous nature of addresses still allows activities to be observed and, in many cases, traced back to real-world entities, exposing consumption patterns, trading partners, and other sensitive information, which may limit the types of activities conducted on the blockchain.

Zcash, created in 2016, is a privacy-focused alternative. It builds on Bitcoin's codebase, retaining its monetary design but introducing optional privacy features through zero-knowledge (ZK) proofs, allowing users to keep transaction details encrypted while the network can still fully verify their validity. The goal is to achieve private ownership and value transfer without compromising the trust model of public blockchains.

Nearly a decade later, this vision is gaining new momentum. Amid a broader market pullback, privacy coins, especially Zcash (ZEC), are rising against the trend, with ZEC increasing over 900% since October. While this brings renewed attention to privacy topics, is it merely another speculative rotation, or a signal of genuine, growing adoption?

[Chart: ZEC Price Trend]

Source: Coin Metrics Reference Rates

In this issue of the "State of the Network," we will explore Zcash's resurgence and the rebirth of on-chain privacy, tracing Zcash's origins, analyzing the growth of shielded activity, and examining the fundamentals and catalysts behind its recent breakthroughs.

The Emergence and Building Blocks of Zcash

Zcash originated from academic research on blockchain privacy that began in 2013 at Johns Hopkins University. Early work produced protocols such as Zerocoin and Zerocash, which pioneered the use of zero-knowledge proofs to enhance privacy on public blockchains.

Building on this foundation, the Electric Coin Company launched Zcash in 2016 as a fork of Bitcoin. It inherits Bitcoin's monetary structure and proof-of-work consensus but introduces the ability for users to choose shielded transactions through zk-SNARKs zero-knowledge proofs, which allow the network to verify the validity of transactions without revealing internal details such as sender, receiver, or amount.

Token Economics and Monetary Design

Like Bitcoin, Zcash follows a fixed issuance schedule that balances long-term scarcity with predictable block reward issuance. The supply cap is 21 million ZEC, with new coins issued approximately every 75 seconds, mimicking Bitcoin's proof-of-work design with a faster block time. It also inherits a four-year halving cycle, reducing block rewards over time.

After the most recent halving in November 2024, the block reward decreased to 1.5625 ZEC per block, resulting in an annual inflation rate of about 2$4\%$.

[Chart: ZEC/Block Block Reward Trend]

Source: Coin Metrics Network Data Pro

Zcash has undergone multiple network upgrades, the most recent being NU6 in November 2024. NU6 changed the structure of the development fund allocated from Zcash block subsidies, distributing 80% of the block rewards to miners, 8% to Zcash Community Grants (ZCG) to fund ecosystem teams, and 12% to a "locked box" governed by token holders, which is a deferred funding pool.

[Chart: Zcash Block Reward Distribution]

Source: Electric Coin Company Zcash Halving

Upcoming upgrades will introduce several improvement proposals, such as ZIP-234, which will smooth its issuance schedule as part of its long-term sustainability efforts.

Adoption of Zcash Shielded Supply and Transactions

A core feature of Zcash is its use of two different types of addresses: transparent addresses (t-addresses) and shielded addresses (z-addresses). Transparent addresses function similarly to Bitcoin, where the sender, receiver, and transaction amount are publicly visible. In contrast, shielded addresses use zero-knowledge proofs, so transactions and fees still appear on the ledger, but details such as participants and amounts remain hidden.

Zcash's optional privacy model means users can choose between fully transparent and fully shielded processes, achieving selective privacy without requiring all activities to be private by default.

[Chart: Illustration of Transparent Transactions, Shielded Transactions, and Mixed Transactions]

Source: Zcash Documentation

With this in mind, we can now look at the growth in the adoption of on-chain shielded activity. Recent data shows a significant expansion in Zcash's private usage. The amount of ZEC held in shielded addresses has grown to 4.9 million, accounting for about 30% of the current supply, up from just 11% at the beginning of 2025.

[Chart: Shielded ZEC Supply (Absolute Value and Percentage of Total Supply)]

Source: Coin Metrics Network Data Pro

This growth is primarily driven by the Orchard funding pool, which was introduced in 2022 as a more efficient shielded funding pool. Its lighter and faster proofs make it well-suited for everyday use, while tools like the Zashi wallet (launched in 2024) introduced unified addresses and direct shielded transfers, reducing many of the barriers that previously limited usability. Additionally, its integration with NEAR Intents allows users to locally exchange shielded ZEC for other assets on-chain, effectively lowering friction and expanding access to Zcash.

[Chart: Percentage of ZEC Held in Zcash Funding Pools (Sprout, Sapling, Orchard)]

Source: Coin Metrics ATLAS

The total transaction volume of ZEC has also surged more than 10 times in recent weeks. The volume of shielded transactions, including shielded, unshielded, and mixed transactions, has sharply increased, while fully shielded transfers still account for a small portion. This indicates that the recent growth is primarily driven by moving value into or out of the shielded funding pool rather than fully operating within it. Combined with the growth in shielded supply, this suggests that even without adopting a fully private end-to-end process, more users are choosing to engage with Zcash's privacy layer.

[Chart: Trend of Transparent Transactions, Shielded Transactions, and Fully Shielded Transfers]

Source: Coin Metrics Network Data Pro

Conclusion

Zcash's recent breakthroughs appear less like speculative surges and more like a repricing of the fundamentals that have been changing beneath the surface. With faster proofs, better wallet user experiences, and easier cross-chain access support, shielded supply began to rise before the price increase. However, the surge in shielded and unshielded transactions is more recent, indicating that price momentum and renewed interest in privacy are helping to attract more users into the shielded layer.

Tools like the Zashi wallet, which features unified addresses and seamless shielded transfers, along with cross-chain infrastructure like NEAR Intents that can directly exchange for shielded ZEC, have significantly reduced friction. Meanwhile, from Rollup to scaling plans like Tachyon, the broader revival of zero-knowledge technology has brought new attention to Zcash's long-standing privacy model.

Overall, the fundamentals and price seem to be reinforcing each other. Infrastructure-driven growth lays the groundwork, while narrative momentum accelerates usage. The increase in partially shielded liquidity indicates a growing demand for selective, optional privacy. Whether this trend can continue will depend on the ongoing deepening of shielded activity and continuous improvements in tools and integrations to lower the cost of adopting on-chain privacy and enhance convenience.

Article link: https://www.hellobtc.com/kp/du/11/6129.html

Source: https://coinmetrics.substack.com/p/state-of-the-network-issue-338

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