Zcash’s NU5 Upgrade Goes Live, Boosting Privacy and Removing ‘Trusted Setups’

The privacy coin now allows transactions that are shielded by default, so users no longer have to opt in to hide payment details on the blockchain.

AccessTimeIconMay 31, 2022 at 5:56 p.m. UTC
Updated May 11, 2023 at 3:52 p.m. UTC

Zcash (ZEC), one of the cryptocurrency market’s longest-running privacy coins, is getting even more private.

On Tuesday, at block height 1,687,104 (about 17:56 UTC), the NU5 upgrade with the Halo Arc product suite was activated on the mainnet, or live version of the network.

Zcash is designed to let users choose whether or not to reveal the details of their transactions. In bitcoin (BTC) and most other cryptocurrencies, transactions (including their amounts, and sending and receiving addresses) are usually out there for all to see on the public ledger, or blockchain.

Private transactions in the Zcash protocol use zero-knowledge proofs (ZKP), a type of mathematical calculation that signals to the network that something is definitely true – like the validity of a transaction – without publishing additional information about that transaction, such as the addresses or the transaction amounts.

Tuesday’s upgrade not only improves the platform’s future scalability but also, more importantly, the foundational way that it protects users’ privacy.

Digital Currency Group, the parent company of CoinDesk, holds ZEC. With a $1.16 billion market cap Tuesday, ZEC is the 57th-largest cryptocurrency, according to digital asset data provider Nomics.

What’s in Halo 2?

Halo Arc, invented and developed at Electric Coin Company (ECC) with the support of the Ethereum Foundation, includes updates to Zcashd (Zcash’s consensus node software), an ECC wallet prototype and the ECC wallet software development kits (SDK). Perhaps the most notable change to the wallet software is the change to its privacy setting. Whereas users previously needed to opt in to shielding their transactions, the upgrade will now enable privacy-protecting, shielded-by-default transactions.

The wallet SDK also includes auto-migration so that funds will automatically shift to the newest shielded pools. A shielded pool is a collection of all shielded transactions stored on the network.

Further simplicity is added with the introduction of unified addresses, a feature that creates a single Zcash address that is compatible across all Zcash value pools, including shielded and transparent ones, so that users no longer have to juggle multiple address types.

No more ‘trusted setups’

When Zcash launched in 2016, the team held a “ceremony” that relied on a trusted setup. It required the creation of a secret number from which a derived number was created in multiple parts by multiple actors. Once the protocol was established, the holders of those parts – known as “cryptographic toxic waste” – would then be trusted to destroy their parts without revealing what they contained. This type of ceremony would then need to be repeated at every hard fork, or major systemwide upgrade.

Tuesday’s upgrade has removed the need for trusted setups in future hard forks. As a result, those trusted parties will no longer be a possible vector of attack or weakness in the protocol’s security. The process for implementing future hard forks is also simpler now because it won’t require the elaborate and costly procedures associated with setting up and securing the original ceremonies.

Improved scalability

Halo 2 also introduces PLONK, a new kind of z-SNARK (zero-knowledge succinct non-interactive argument of knowledge), to verify transactions more efficiently. Essentially, PLONK is an instance of a proof that can verify itself, “allowing any amount of computational effort and data to produce a short proof that can be checked quickly,” according to an ECC blog post.

Halo 2 is an open-source project that encourages community participation and contribution. However, as Zooko Wilcox, the creator of Zcash and founder and chief executive of ECC, pointed out, “While the Halo Zero-Knowledge Proof system is available to the world under a permissive (MIT) open-source license that allows anyone to do anything with it, the new Zcash shielded money protocol is not.”

Zk-proofs have long been a part of the development roadmap for Ethereum, the second-largest blockchain, and are poised to play a role in future scaling and privacy systems for its zero-knowledge-powered Ethereum Virtual Machine (EVM). Similarly, distributed store protocol Filecoin has been using Halo as part of its scaling system.


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Christie Harkin

Christie Harkin is CoinDesk's managing editor of technology. She holds some bitcoin and non-material amounts of other crypto tokens.