Bitcoin vs Zcash: The Quantum Computing and Privacy Competition Begins

[Block Media Reporter Ham Ji-hyun] Bitcoin (BTC) and Zcash (ZEC) are solidifying their different survival strategies ahead of the quantum computing era. Bitcoin has begun exploring the addition of quantum-resistant signature systems while maintaining its existing structure, whereas Zcash has already implemented strong privacy technology as a core feature and has included a transition to a post-quantum (PQ) system in its roadmap.

Recently, Blockstream presented specific plans to apply the quantum-resistant signature system 'SHRINCS' to Bitcoin, marking a shift from research to actual protocol design issues in response to quantum computing.

Quantum Resistance is Essential: Bitcoin Uses SHRINCS, Zcash Uses 'Tachyon'

Currently, both Bitcoin and Zcash have limitations in that they do not possess perfect quantum resistance.

The ECDSA and Schnorr signatures currently used in Bitcoin are based on elliptic curve cryptography (ECC). If a sufficiently powerful quantum computer emerges that can execute Shor's algorithm, it theoretically becomes possible to calculate the private key from the public key. In particular, UTXOs that have already been exposed on the blockchain can become direct targets for attacks.

Of course, this does not mean that Bitcoin is vulnerable right now. The known quantum computers have not yet reached a level that can effectively undermine Bitcoin's elliptic curve cryptography. The issue is that a globally distributed network like Bitcoin may take years to transition to a new cryptographic system.

Blockstream acknowledges that while it is uncertain when or if quantum computers will actually appear, the transition of Bitcoin's cryptographic system will take considerable time, and therefore preparations must be made before the threat materializes.

Blockstream Research is developing SHRINCS as a solution.

SHRINCS is a quantum-resistant signature method based on the security of hash functions rather than the elliptic curve problem. Considering the blockchain environment where block space is limited, and the size of signatures directly translates to costs, Blockstream has focused on reducing the size compared to existing post-quantum signatures.

According to the proposal, the signature size of SHRINCS is at least 548 bytes, which is about nine times larger than the 64-byte Schnorr signature widely used in Bitcoin. Nevertheless, it is relatively smaller than other quantum-resistant signature systems approved by the National Institute of Standards and Technology (NIST), such as SPHINCS+.

Performance differences are also important. The proposal estimates that applying SHRINCS would result in Bitcoin's throughput being around 3 TPS, which is not significantly different from the current level. In contrast, applying some NIST-approved quantum-resistant algorithms could potentially reduce throughput to levels between 0.36 and 0.5 TPS.

SHRINCS is not just a theoretical proposal. Blockstream has already tested SHRINCS-based post-quantum signature transactions in a real environment on the Bitcoin sidechain Liquid. However, further analysis and external review are needed due to insufficient security proofs.

Separately, the Bitcoin community is discussing a phased withdrawal of existing ECDSA and Schnorr signatures, assuming that a post-quantum output method will be introduced in the future. This involves preventing new Bitcoins from being sent to addresses vulnerable to quantum attacks after a certain period and subsequently restricting the spending of coins protected by existing signatures.

Zcash's core privacy protocol Orchard also uses the Pallas-Vesta elliptic curve, making it not immune to quantum attacks. However, Zcash is working on next-generation projects to prepare for quantum threats.

Through the project 'Tachyon', Zcash is designing a new shield protocol that differs from the existing Orchard. It is particularly focused on combining Private Information Retrieval (PIR) and post-quantum key exchange to maintain scalability while protecting privacy in the quantum computing era.

This is also why Zcash has introduced the concept of 'quantum-recoverable'. It does not mean that the entire system is immune to quantum attacks, but rather that it aims to provide a pathway for users to recover and transfer their assets to a secure cryptographic system when future threats materialize.

In other words, Zcash is addressing the quantum threat not just as a signature method issue but as a next-generation cryptographic system transition problem that includes wallets and privacy protocols, putting it a step ahead of Bitcoin.

The Starting Point for Privacy is Different: BTC is 'Public', ZEC is 'Hidden'

While both sides are still in the transition process regarding quantum resistance, their starting points for privacy are fundamentally different.

The Bitcoin blockchain is fundamentally public. While addresses are not displayed with real names, anyone can verify how much has moved from one address to another. Especially when on-chain data is linked with customer verification (KYC) information from exchanges or public wallet addresses, it is possible to track the flow of funds through blockchain analysis.

As a result, Bitcoin has also evolved in the direction of enhancing privacy features. A notable example is Taproot, activated in 2021, which reduces the exposure of transaction structures by revealing only the conditions actually used instead of making all complex spending conditions public on the blockchain. Additionally, the v2 P2P transmission feature based on BIP-324 encrypts communication between nodes, making it difficult for network monitors to ascertain the initial propagation location of specific transactions or the communication content of nodes. Privacy can also be further enhanced using separate technologies like Tor.

However, this approach fundamentally differs from Zcash, which has privacy as a core feature while maintaining Bitcoin's public ledger and minimizing unnecessary information exposure.

Zcash has embedded privacy as a core feature from the beginning.

The current core Orchard shield pool utilizes 'Halo 2-based zk-SNARKs'. Users can cryptographically prove that a transaction is valid according to Zcash's consensus rules without disclosing sensitive transaction information. The NU5 upgrade in 2022 introduced Orchard and Halo 2. In previous zero-knowledge proof systems, users had to trust that the secret information generated during the initial cryptographic parameter creation process was completely discarded, but Halo 2 implemented a structure that does not require such 'trusted setup'. This fundamentally changes the structure of the previous zero-knowledge proof systems that required the generation of secret values that had to be discarded.

This reduces the theoretical attack paths that could lead to ZEC counterfeiting and allows for more flexible future upgrades of the cryptographic system. Unified Addresses have also been introduced to make it easier for wallets to utilize the latest shield pools.

Ultimately, if Bitcoin's privacy strategy is to 'maintain a public ledger while minimizing unnecessary information exposure', Zcash's approach is closer to 'cryptographically hiding transaction information while proving validity'.

This aligns with the logic that Grayscale has recently put forth, positioning Zcash as a potential competitor to Bitcoin. Grayscale noted that while Bitcoin holds an overwhelming network effect, accounting for about 93% of the market capitalization in the currency sector, Zcash, which actively responds to financial privacy and next-generation cryptographic technologies in an environment where AI-based blockchain analysis and quantum computing are emerging, could have the advantage of being a 'second mover'. They argue that features that were relatively less important at the time of Bitcoin's inception could become new competitive advantages.

Galaxy Research also positively evaluated Zcash's privacy strategy. Lucas Ceylan, Vice President of Galaxy Research, described the response of Zcash's development team, which introduced a formally verified Ironwood pool and a quantum-recoverable structure about two months after discovering vulnerabilities in Orchard, as "impressive" in a report at the end of July. In particular, Galaxy pointed out that institutions find it difficult to expose their trading strategies and asset sizes directly on a public ledger, stating, "Privacy is no longer just a category of digital assets but a necessary requirement of the base layer."

Zcash Has Privacy Advantages Over Bitcoin, but Faces Regulatory Burdens

Zcash's technical advantages do not necessarily mean it has higher competitiveness than Bitcoin.

Privacy technologies increase complexity and also raise the burden on regulatory agencies and exchanges. Especially due to the difficulty in tracking the flow of funds, privacy coins have consistently clashed with anti-money laundering (AML) regulations.

There are also technical risks. The complex zero-knowledge proof systems may have unforeseen vulnerabilities during implementation, necessitating continuous security verification. This means that in exchange for strong privacy, a much more complex cryptographic system must be maintained and verified.

In contrast, Bitcoin has maintained a relatively simple and verified cryptographic structure and a transparent ledger. The culture of conservatively introducing new features is an advantage in terms of security but can slow down the transition speed when it comes to replacing existing cryptographic systems like quantum computing.

Currently, in terms of technology levels, Zcash is ahead in privacy, but neither side has reached a completion stage in quantum resistance. Bitcoin is testing candidate technologies like SHRINCS in actual sidechains while seeking methods for mainnet transition, and Zcash is moving towards incorporating quantum-recoverable structures and post-quantum technologies into next-generation privacy protocols.

Ultimately, the difference between the two blockchains lies in how long it takes to achieve a 'cryptographic system replacement' in response to quantum computing threats. While Bitcoin must approach cautiously to maintain the network effects accumulated over more than 17 years, Zcash can relatively flexibly adopt the latest technologies as a latecomer.

Experts point out that in Bitcoin's response to quantum threats, the speed of transition may be a more significant issue than the cryptographic technology itself. Deutsche Digital Assets stated last month that "the core of the argument that Bitcoin is particularly vulnerable to quantum computing attacks is the issue of governance speed" and analyzed that "unlike centralized financial institutions, Bitcoin requires extensive network consensus to replace its cryptographic system."

Dan Boneh, a professor of cryptography at Stanford University, also predicted that the transition to quantum resistance for Bitcoin would incur significant costs. In an interview released in August, Professor Boneh stated that if Bitcoin transitions to hash-based signatures in the SHRINCS family, "the cost of signatures would increase tenfold," and how to address the block size issue has yet to be determined.

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