Bitcoin has been around for a while now, and a few large issues have turned up:
- Transactions per second: The block size limit imposes a 3 transactions per second (tps) limit for the whole network. A far cry from the 2000 tps that VISA processes on average.
- Privacy: Absolutely everyone can see all your transactions. Bitcoin’s claim to anonymity only holds so long as nobody knows what addresses you control. And since most coins are bought on regulated exchanges these days, governments almost certainly know that.
- Decentralization: A few huge mining pools in China control more than 50% of the Bitcoin network, and could, if they wanted, take over everyone’s coins.
The first issue is causing prices of Bitcoin transactions to be expensive or slow (pick your poison!). Bitcoin has a variable transaction fee. Basically, whoever mines a block gets to write that part of the ledger, and will choose to include those transactions who are paying the most. This is causing transactions to cost $0.20-0.40 in times of congestion. More than most domestic bank transfers, but still a far cry from the $20 SWIFT fees for international bank transfers. This is causing a significant drag on adoption of Bitcoin for new use cases like micropayments.
There have been several attempts to fix or alleviate the tps-issue. Increases of the bitcoin block size limit, like Bitcoin Unlimited or more fundamental changes like Segregated Witness. But none have reached the level of adoption needed to go live. They have popular support in the bitcoin community, but due to issue number 3, Chinese miners effectively decide what gets adopted or not.
ZCash is a new cryptocurrency that is focused on privacy. It uses a very clever algorithm to hide transaction details like sender, recipient and amount from everyone except those user who are involved in a transaction. ZCash has gained a lot of support for its young age. Mining officially started in October 2016, and it already has reached rank 11 among the cryptocurrencies in terms of market cap (as of March 27, 2017).
ZCash is set to mine blocks four times as often as Bitcoin, so it has lower latency. Also, transactions are free right now, but this is likely due to less volume, and not to any fundamental upgrades when it comes to scaling. As far as I know, the scaling limitations of Bitcoin are not specifically addressed with ZCash either.
Another nice feature of ZCash is that it uses Equihash, a memory-intensive mining algorithm, which makes it very hard to manufacture purpose-built equipment for mining like the ASICs that dominate Bitcoin-mining. This is important, since it is unlikely to make economic sense to buy lots of standard hardware for mining companies who are competing against idle capacity in the already-paid-for hardware of gamers around the world. This is good for decentralization and also means a non-trivial amount of coins gets distributed to a lot of different people. A GPU is likely to almost pay for itself over the course of a year – a subsidy many gamers gladly accept. It also may mean that it will be easier to implement future upgrades to the protocol.
Disclaimer: This is not investment advice. I also don’t know enough about the company that created ZCash and what controls it has over the currency.