Zcash Is Getting a Major Upgrade in November. Could This Be a Catalyst for Further ZEC Price Gains?

Zcash (CRYPTO: ZEC), the largest privacy coin by market cap, is about to get a major technical upgrade around Nov. 5. The NU7 network upgrade will cut the time between blocks of transactions from 75 seconds to 25, making confirmations roughly three times faster.

Despite a rough year for the crypto market, Zcash has exploded in value, gaining 134% year to date. Let's take a closer look at the NU7 upgrade to see what it changes and whether it could drive further growth.

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What NU7 changes

The main headline of the NU7 upgrade is the change in block time. Like other cryptocurrencies, Zcash records transactions on a blockchain, with each block containing groups of transactions. Blocks currently have a target confirmation time of 75 seconds, which will drop to 25 seconds after the upgrade.

This doesn't mean transactions go through in 25 seconds. Each exchange sets a required number of confirmations to fully verify a transaction, based on its risk tolerance. If an exchange waits for three confirmations, then transaction times on its platform would drop from nearly four minutes (225 seconds) to 75 seconds.

NU7 also changes Zcash's fee allocation. Starting at activation, 60% of each block's transaction fees are removed from circulation and placed in the network sustainability mechanism, a reserve that provides a security budget for the network. Miners keep the other 40% of transaction fees. Originally, 100% of block fees went to miners. Like Bitcoin, Zcash has a hard cap of 21 million coins, so the reserve prepares for a day when fees pay miners rather than newly issued coins.

In addition, the upgrade adds per-block limits on shielded transactions and shuts down Sprout, the blockchain's original privacy pool. Funds must be transferred out of Sprout before activation, or they'll become unusable.

The risks

Execution issues are the primary risk for the NU7 upgrade, especially since it's being activated on a faster schedule than usual. Zcash's rules normally call for activation to occur approximately three months after release of the first software for the new network. This provides exchanges, node operators, and miners with ample time to update their software before it expires.

NU7's deployment document waived the three-month requirement. A release candidate started running on Zcash's test network early last month, but the stable software for the main network only launched on Oct. 22. Anyone using outdated software could end up on a different chain.

The closure of the Sprout pool also presents potential issues. Any funds left there will be lost forever, and moving funds off that pool could temporarily expose transaction amounts.

Will this Zcash upgrade drive up the price?

NU7 is an important upgrade to the Zcash network, both shortening block times and setting aside fee revenue in a reserve. But I wouldn't expect it to have a big impact on the privacy coin's price.

Blockchain upgrades aren't surprises. They're scheduled in advance, giving traders time to buy in and often turning the actual activation dates into "sell-the-news" events. Zcash has also already been one of the most successful crypto investments this year, so an upgrade may not be enough to move the needle at this point.

For investors, it's still worth watching how activation goes. A clean switch to NU7 would be a positive sign, while a delay or glitch could weigh on sentiment. Either way, the upgrade's value is more likely to show up in how Zcash works than in its price.

Lyle Daly has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.