Arkham Intelligence says it has labeled more than 53% of Zcash on-chain activity, describing roughly $420 billion in transactional volume and sparking debate over the coin’s privacy positioning. The Zcash development community disputes the implication, arguing that fully shielded z-address transactions remain cryptographically private, and that the analysis focuses on transparent flows and interactions with exchanges.
Arkham’s methodology did not rely on breaking Zcash cryptography. Instead, analysts applied entity clustering, behavioral pattern analysis, and exchange-derived labels to trace flows that use transparent (t-) addresses or move between transparent and shielded (z-) pools. Arkham asserts this produced coverage of about 53% of on-chain transactions and identified large value flows relevant to traders and enforcement, stating it has “labeled over 53% of on-chain activity” and presenting the dataset as a new lens on ZEC flows.
Zcash uses two address types: transparent addresses expose balances and transfers publicly, while shielded z-addresses hide sender, recipient and amounts using zk-SNARKs. A zk-SNARK is a cryptographic proof that verifies a transaction’s validity without revealing its contents.
The optional privacy model lets users choose between those address types; analysts argue that the existence of transparent paths creates observable linkages when users or services mix both types.
Market, privacy and regulatory implications
The report triggered immediate debate about the practical limits of on-chain privacy. Critics say the finding exposes a design trade-off: optional privacy increases the attack surface because a smaller anonymity set makes movements easier to correlate. An anonymity set is the pool of transactions among which an observer cannot distinguish individual participants.
The Zcash development community responded that shielded z-to-z transactions remain cryptographically inviolable and that the report conflates observable transparent activity with a breach of protocol-level privacy. “Fully shielded transactions remain cryptographically inviolable,” the community stated, emphasizing that the claim does not equate to a cryptographic exploit.
Market dynamics could shift if users and institutions reassess privacy guarantees. Analysts flagged possible short-term consequences: more visible whale behaviour, faster identification of large moves, and sharper market reactions as traders incorporate labels into models.
The shielded pool has been expanding, with adoption metrics cited in the debate showing a rise in shielded supply and growing interest in selective-disclosure features such as viewing keys. Increasing use of shielded channels can expand the anonymity set and mitigate linkage risk, while infrastructure and exchange support remain critical to that shift.
