Today the first ever truly anonymous crypto currency ZEC went live. The full P2P client can be downloaded from here [Linux only for now].

The total number of ZEC coins will be only 21 million, like in bitcoin. Zerocash also reproduces few other unreasonable properties known from bitcoin: bizarre monetary policy with inelastic monetary supply and block halving every 4 years,  get-it-rich-quick or “gold rush” syndrome, etc. All the things which make a crypto currency with very high volatility, which I anticipate will be AT LEAST as bad as for bitcoin, and probably a lot worse. This of course, will be a tremendous barrier for wider adoption of Zerocash by people other than libertarians or tax dodgers.

Volatility Stage 1: Klondike Revisited

Early miners are already selling their coins. To start with, Poloniex has started trading them at UNBELIEVABLY large prices and only tiny fractions like 0.001 ZEC were traded. In the first hour and half, prices were moving like crazy between 500 and 3000 BTC per ZEC. In the next hour it went below 20 BTC, in the next 24 h it went below 5 BTC, and after another 24 hours, it went down to 1 BTC.

It is worth noting that the Zerocoin price as anticipated by a prediction/futures market has peaked at around 1 BTC in the days/hours preceding the release.

Volatility Stage 2

It is unlikely that an equilibrium market price will be reached in the coming days. We expect further very high volatility for Zerocoin. The monetary policy of Zerocoin is genetically programmed to impose a certain pattern [known in advance] of progressively increasing monetary supply to the infant market. In particular, ZEC has artificially small block mining rewards for the first 34 days of mining. At the same time crypto currency investors have hundreds of millions of dollars in cash to play with, and many investors have been investing in altcoins rather than bitcoin. This is because traditionally altcoins are more volatile than bitcoin, so more profits can be made from trading. Moreover, maybe the only way for some investors to hope for really fabulous returns is to see some altcoin challenge the dominant position of bitcoin in the market.
Though only fools bought Zerocoins early on, many investors are now playing the game of guessing at which moment in ZEC history will be the best moment to buy, which question has no objective answer as it depends on actions of other investors.

Future Market Expectations

Zerocash certainly adds value to the cryptocurrency market. Now the question is how much is the added value? Here is a plausible evaluation and a plausible scenario for the future of ZEC:

• For some time it will be just a game where foolish investors are going to jump-start a (decreasingly) profitable mining market. In my opinion for now, Zerocoin is worth zero, in fact the system does not even work properly yet.
• The crypto currency market is today worth about 10 Billion USD. Now, not every user or miner of crypto currency cares about high levels of privacy. We conclude that the added value will be not more than a small fraction of 10 G$.
• I believe that Zerocash can hardly hope to achieve and sustain a 100M-ish market cap in the coming months, similar to what Monero has already achieved,  which is maybe a fair measure of how much the market value an anonymous crypto currency in 2016.
  • Achieving a similar result within a few months will be already a great success for the Zerocash team.
  • The aforementioned futures market can apparently be seen as a bet on sth like 350M$ market cap at the end of 2016, cf. here.  Probably by far too optimistic.
• Then only within a few years, the market cap of ZEC is likely to know some organic growth and larger adoption, and then it should be worth billions of dollars.

Will ZeroCash Be Banned?

An interesting question is whether some government [United States, EU, maybe Russia] is going to ban or forbid zerocash. Such a ban could be decided just because the production of money is according to some, a state monopoly in the United States. This is however largely disputed and for example bitcoin is tolerated today in most countries.

In contrast, a truly anonymous crypto currency could be just banned in many jurisdictions. While bitcoin is very rarely claimed to be a threat to national security (even less to the US currency), ZeroCoin is definitely a huge challenge to national security. It could lead to a re-definition of the term of so called “domestic terrorism”, which term was quite surprisingly used in the  Liberty dollar case where it was rather totally inappropriate (cf. here). However anonymous crypto currency is such a tremendous threat to the established legal and financial order, taxation, and such a powerful enabler for organized crime, that we should expect legislators to introduce new specific forms of crime related to anonymous digital currency. Interestingly, Zerocash allows also for non-anonymous usage.

Illustrations are under 123rf licence.