Mert Mumtaz & Illia Polosukhin: What Happened to Zcash (Full Explanation)

Sure.

Well, fundamentally, there's two groups of people here.

One are the people who were aware that this was a risk with ZK based privacy protocols and then everybody else.

Right.

And so I think you would probably fall into the into the latter.

But I had like the way to think about this is that.

With any privacy protocol that employs ZK circuits, but not necessarily even ZK circuits, just different types of math.

For example, Monero has similar issues, although they are different class, but counterfeiting all the same.

And Bitcoin actually has had a similar issue in the past as well.

The main difference here is, of course, it's much harder to detect if you have a fully private pool.

right and so really the only way you can detect a supply issue is by having these things called turn styles which count the net difference between what goes in versus what goes out so obviously if there's structure in such a way that you can't have more than what went in go out right so it's supply control in that sense um now this is not new information to zcash people and a fair amount of investors i would say especially ones who've been around for some time uh like even like four months ago six months ago eight months ago a year i always kind of have the same debate on twitter with bitcoin people about like Well, Bitcoin would never do this because they care about the audibility of the supply.

And I'm like, well, that is a soluble problem with things like formal verification and like better audits and just making the arithmetic for ZK circuits simpler.

And so it's always kind of this back and forth.

So this is like a pretty well-known tradeoff on the risk spectrum.

The problem, of course, is that a lot of the new people were not aware of this risk.

And this was made worse by two things.

One is that people tweeted that, well, actually, somebody just vibe coded an exploit with AI, which is, of course, not what happened.

What happened is it was a highly technical and highly domain knowledgeable auditor who knows Zcash better than almost anybody in the world.

explicitly tasked to helping patch bugs if he found anything of the sort.

So that's what happened.

It wasn't like a, because like other people who would have already found it by then, including other cryptographers who are world-class, who already work on Zcash, right? And then the other one, of course, is that the price went down a ton.

Now there's a few reasons for this.

One is that there was a network upgrade, which made it such that some people actually like Binance, for example, disabled deposits, which kind of delayed the price movement, right? When everything nuked like yesterday or the day before in the crypto markets, Zcash didn't nuke because it literally couldn't.

But then now you combine that with the huge sell-off of the market today, right? Like QQQ, I believe, NASDAQ is down the most it's been since April 2025, right? So there's like a huge sell-off and panic everywhere.

You combine all of that, and then obviously it was the only coin that was still really up and it's just really fun to beat down and in that case right and so you kind of have this mass hysteria uh and then it just keeps piling on and on and on uh and so that's that's kind of where we are today