Could Zcash Flip Bitcoin Someday?

Bitcoin's (CRYPTO: BTC) enigma of a creator, the pseudonymous Satoshi Nakamoto, envisioned a peer-to-peer electronic cash system where users could transact without being surveilled, and without needing to live inside the traditional financial system. But, at the time, the available privacy tech wasn't flexible enough to implement, at least not at the time for a digital currency with a public blockchain. So Bitcoin launched with everyone's transactions being fully visible, which they are to this day.

Zcash, (CRYPTO: ZEC) on the other hand, was built specifically to have Bitcoin's supply policies and other properties, with the addition of some optional privacy features. Here's another very interesting wrinkle: During the past 12 months, Zcash's price soared by 580%, whereas Bitcoin's languished, falling by 15%. So is it possible that someday, Zcash might flip Bitcoin's value as a result of its bigger and better feature set?

Image source: Getty Images.

What Zcash has

Zcash and Bitcoin are practically twins as a result of the former's developers pursuing that state intentionally. Both have a hard supply cap of 21 million coins, with halvings happening every four years or so, meaning that the newly mined supply is produced at a slower and slower pace over time.

The main divergence is cryptographic. Zcash uses a newer type of cryptographic proof system that allows for the private validation of a transaction without revealing the sender, recipient, or amount. If crypto investors at large suddenly feel a need for privacy in their financial matters, or a need to hide their capital from governments seeking to expropriate it, Zcash is thus already positioned to welcome them with open arms. Depending on how the coming years play out, that could be a huge driver of it eventually surpassing Bitcoin.

Zcash also has a very important funding structure Bitcoin lacks. A portion of its block rewards flow to a community-managed developer grants pool, which in turn means that its ecosystem perpetually generates a trickle of start-up capital that's available to disburse to developers. So over the very long run, if that ecosystem works as intended, it could attract even more capital to be invested in Zcash, which, when considering the other differences between it and Bitcoin, could drive it to flip its bigger brother.

This mountain probably won't get climbed

Now that we've seen the path for Zcash, it's time to throw some cold water on this idea. The math doesn't look good at all here.

Bitcoin's market cap is about $1.4 trillion; Zcash's is roughly $3.5 billion. Closing a gap of that size would require a huge and sustained explosion of demand for Zcash, likely alongside prolonged Bitcoin stagnation or decline, and those two states would need to be maintained for at least a couple of years. There probably won't be any flipping of Bitcoin happening.

Nonetheless, Zcash is still a decent investment for those who are tolerant of a significant degree of risk. It's a bet on financial privacy as a durable human need, which isn't going away anytime soon. Bitcoin, of course, is also still a great pickup for your crypto portfolio, even if it doesn't offer the same privacy features.

Alex Carchidi has positions in Bitcoin and Zcash. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.