ZCash (ZEC)

About this Statement

Coinut Pte Ltd.  (“Coinut” or “we”) believes that our users should understand the crypto assets that they are able to trade using our crypto trading platform (the “Platform”). One of the crypto assets we offer on the Platform is Zcash (“ZEC”). We created this summary to help you understand the basics of ZEC as well as some of the risks involved in trading it. While we tried to describe the key features of ZEC here, this summary isn’t meant to tell you everything you’d want to know before investing in ZEC. You should also do your own research on ZEC to make sure you are comfortable investing in it.

Description of ZEC

The initial development of ZEC began in 2013 and was led by Johns Hopkins University professor Matthew Green. The for-profit Zcash Company, led by Zooko Wilcox, a Colorado-based computer security specialist, completed development in 2016.

The Zcash Network was based on the original code base for the Bitcoin Network. As a result, it shares noticeable similarities to its source chain, such as a fixed supply of 21 million units and a similar inflation rate. The main feature separating ZEC from bitcoin is that ZEC belongs to a separate class of crypto assets commonly known as “privacy coins” which emphasizes privacy over transparency.

Popular crypto assets such as bitcoin or ether can operate on transparent blockchains because they obscure user identities with pseudonyms. However, pseudonymity is not the same as anonymity – a user’s identity is shielded, but that does not guarantee that it is unidentifiable. For example, if you made a bitcoin account, your identity would be obscured by a pseudonymized public address, such as: “1EjqMGa5j6JNQDMNXkrRZq7WSmqLRzn9fU.” This pseudonymization prevents your personal information from being publicly linked to you when your financial information is transparently reported to others in the Bitcoin Network. All components of a bitcoin transaction will be permanently and publicly recorded on the Bitcoin blockchain. Essentially, the entire Bitcoin Network can see that funds were sent from you to another public address, and they can see how much was sent. Although your personal information is not explicitly linked to you, advances in data science and blockchain forensics may allow a motivated party to figure out the identity behind a public address. If learned, this may give someone access to your entire transaction history on the blockchain. Additionally, sending or receiving bitcoin requires sharing your public address with the other transacting parties. Sharing a public address is not like sharing your bank account number; the other transacting parties will be able to see how much you have saved at your public address. If the transacting parties happen to know your identity, then this would be the equivalent of sharing how much you have in your bank account.

Privacy coins try to mitigate potential privacy concerns by limiting transparency. These blockchains will still record transactions within the network, but they give users the option to avoid publicizing some components of their transaction, such as the origin or the destination of their funds. ZEC allows users to choose if they would like their address to be transparent (“t-addresses”) or private (“z-addresses”). With a z-address, a user can encrypt some or all components of their transaction with a cryptographic tool known as zero-knowledge proofs. A zero-knowledge proof allows an encrypted transaction to be verified without needing to reveal information that was meant to be kept private. With zero-knowledge proofs, the ZEC blockchain can prove that $2745 was sent from one private address to another without publicizing where the money came from, how much was transferred or where it was sent. Blockchains that do not use this cryptographic technique, such as the Bitcoin or Ethereum blockchains, would have to reveal all this information to prove that the transaction happened.

Since the sender and the recipient of funds can both select their own address type, there are four categories of possible transactions on the ZEC Network: (i) public transactions; (ii) shielding transactions; (iii) de-shielding transactions; and (iv) private transactions. Public transactions are like transactions on the Bitcoin Network – both the sender and the recipient are using t-addresses, so all components of the transactions are publicized on the blockchain. Private transactions occur when both parties are using z-addresses, meaning that zero-knowledge proofs are used to verify encrypted transaction details. The blockchain third party would be able to see that a transaction occurred and that fees were transferred, but all details about the addresses and transaction amount are kept private. Thus, one private transaction on the ZEC Network is indistinguishable from another private transactions. Shielding and de-shielding transactions are viewed as semi-private because only some transaction details are made private. A shielding transaction only hides the identity and number of recipient addresses, while a de-shielding transaction only hides the sender’s address.

Risks

Like other crypto assets, there are some general risks associated with investing in ZEC. We describe many of these general risks in the risk statement we publish on our website, including risks relating to: (i) volatility; (ii) access, loss or theft, (iii) control of processing power; (iv) settlement of transactions on crypto asset networks; (v) momentum pricing; (vi) private keys; (vii) internet disruptions; (viii) faulty code; (ix) network development and support; (x) regulatory risk; (xi) network forks; (xii) air drops; (xiii) voting rights; (xiv) cybersecurity incidents and other systems and technology problems; and (xv) unforeseeable risks. We also point out some risks that are specific to ZEC below. While we tried to describe the key risks associated with ZEC here and in our risk statement, these aren’t all of the risks associated with trading in ZEC. You should also do your own research on ZEC to make sure you are comfortable investing in it.

Concentration of ZEC Holdings

The largest ZEC addresses hold a very large portion of the ZEC currently outstanding. Market volatility may result when large holders of ZEC decide to sell significant amounts of their ZEC positions.

Increased Regulatory Scrutiny

Government regulation has the potential to disrupt the market for privacy coins such as ZEC. The privacy-focused features of ZEC have led governments to be concerned about the crypto asset’s potential use for illicit activities like money laundering, the purchase of contraband and tax evasion. The price and use case for ZEC may be negatively affected should government policies be implemented which limit or ban the usage of privacy coins like ZEC.

How Coinut Decides to List Crypto Assets

Coinut reviews crypto assets before making them available for trading on the Platform. In making our decision to list a new crypto asset, we consider publicly-available information about the crypto asset, including (among other things) its creation, design, governance, usage, supply, demand, maturity, utility, liquidity, material technical risks and legal and regulatory risks. Our review process is fulsome and flexible, and we don’t prioritize any one factor over another. You should review the risk statement published on our website for more information about our procedures for determining whether to make a crypto asset available for trading on the Platform.

Regulatory Information

Coinut is offering crypto contracts to purchase and sell bitcoin in reliance on a prospectus exemption contained in the exemptive relief decision Re Coinut Canada Ltd. The statutory rights of action for damages and the right of rescission in section 130.1 of the Securities Act (Ontario) and similar legislation in the other provinces and territories of Canada would not apply in respect of a misrepresentation in this statement.

No Canadian securities regulatory authority has expressed an opinion about ZEC, including an opinion that ZEC is not itself a security and/or derivative.