Only one of these coins is well-aligned with financial regulators as of today.
It’s quite clear that both Ethereum (CRYPTO: ETH) and Zcash (CRYPTO: ZEC) have value. Right now, Zcash’s price is sprinting upward each day, and during the past three months, it has gained more than 500%. On the other hand, Ethereum remains the network where most of the useful financial activity happens, and that activity is increasingly aligned with how big money wants to operate.
Investors win when an asset offers real economic value.
On that front, Ethereum leads the decentralized finance (DeFi) sector by a wide margin. You can see this in its total value locked (TVL) of $86.8 billion, which is a strong proxy for the amount of work being done on the chain. As of today, Ethereum hosts the largest DeFi base by far, as it makes inroads in another important growth segment: real-world assets.
The most credible institutional use case in crypto right now is the tokenization of real-world assets (RWAs) like U.S. Treasuries and exchange-traded funds (ETFs). Ethereum is the default venue, with $11.9 billion in RWAs parked on its chain. As RWA-related capital inflows continue, the coin will be in higher demand and feature more value on its chain.
Of course, Ethereum has plenty of competition in DeFi and RWAs. It will have even more competition in the future. The point is that large asset managers already build on or start from Ethereum’s stack, then branch out to other chains as they see the benefits of doing so. This matters for the long term because it helps cement standards, tooling, and liquidity based on Ethereum’s norms and requirements.
Buying Ethereum today is buying the leading blockchain for asset management today and tomorrow, and, as an investment thesis, its progress makes taking the plunge look fairly appealing.
Zcash doesn’t have a DeFi ecosystem, nor will it. It’s also unlikely that the chain will be used to manage RWAs anytime soon. As a privacy coin, its use case is much closer to Bitcoin’s. It also has some additional features which, if used, can mask the identities of senders and receivers, as well as the quantity transacted.
In practice, however, investors must weigh this promise against real frictions.
First, the regulation remains a significant headwind for privacy coins. In short, financial regulators do not like it when there are assets that can be used for private transactions, as that could shield illegal activity. Thus, Zcash has struggled to remain listed on some of the leading crypto exchanges, and has actually been delisted in some cases.
Second, Zcash’s privacy is optional, and at least a tiny bit inconvenient to those who use it. Many coinholders transact transparently rather than using shielded wallet addresses, undercutting the network’s differentiation in day-to-day usage. Shielded adoption is growing compared to the past, but it still isn’t a majority of the network’s transaction value.
Finally, Zcash’s value mechanism is thin compared to Ethereum’s. There is no comparable DeFi or RWA ecosystem on offer. Thus, it relies on its Bitcoin-like scarcity mechanisms, including its halving process, and persistent demand for its privacy capabilities, to have any shot at gaining in value over the long term.
Could Zcash be a good investment in light of those constraints? Yes, it could be, and for many, it probably will be. But as of today, compared to Ethereum, Zcash is a smaller asset with far more obstacle to its success, some of which are unlikely to abate.
For investors allocating capital, Ethereum is the better buy today. Zcash could still be a decent purchase, but it’s higher-risk. Putting aside its recent moonshot, it probably doesn’t have as much upside in store for those who buy it now.
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Alex Carchidi has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
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