“Infinite Money Printing” Vulnerability Lurked for Four Years, Privacy Coin ZEC Halved in a Day

Original by Odaily ( @OdailyChina )

Author: Asher ( @Asher_0210 )

On the early morning of June 5, Zcash founder Zooko Wilcox announced that a critical counterfeiting vulnerability had existed in Orchard, Zcash's next-generation privacy pool launched in 2022. Although Zcash officials emphasized that the vulnerability has been fixed and the probability of it being exploited is low, it has been difficult to stem the spread of market panic.

Following the news, Zcash's token ZEC plunged rapidly, with a short-term drop exceeding 30%. By the afternoon, selling pressure had not abated, and panic continued to spread, with the price once falling to around $250 and the intraday decline widening to over 50%.

After security researcher Taylor Hornby discovered the issue on May 29, he verified the vulnerability in a local environment and generated a testnet counterfeit ZEC, further confirming the vulnerability was an executable attack vector. Currently, the two biggest controversies surrounding Zcash are: first, whether any counterfeit ZEC actually appeared in the privacy pool over the past four years; and second, how officials can prove that no counterfeit ZEC flowed into the privacy pool, making it extremely difficult to disprove the negative.

Where Does the "Unlimited Minting" of ZEC Come From?

Orchard's security relies on zero-knowledge proof circuits, with the core rule being asset conservation: the expenditure in each transaction must come from a legitimate input, and ZEC cannot be created from nothing. Users can hide their balances and transaction amounts, but the system must verify the transaction's legitimacy.

Security researcher Taylor Hornby discovered an under-constrained condition in the Orchard circuit. An attacker could input data that should not pass verification, yet the verification might still return success. In other words, it doesn't require administrator privileges or node control, nor is it a backdoor vulnerability. As long as the system mistakenly considers the transaction legitimate, ZEC that doesn't actually exist could be recorded as a legitimate asset within Orchard.

Shielded Labs described this as "unlimited, undetectable counterfeit ZEC."

Vulnerability Fixed, but Historical Issues Remain Unresolved

What ordinary security incidents fear most is severe losses, but the most troublesome aspect of this Zcash crisis is that the losses cannot be directly quantified.

If an attack occurred on a transparent chain, the market could at least see the attacking address, fund flows, and affected assets. However, Orchard's transaction amounts, balances, and fund paths are inherently hidden. Once counterfeit ZEC has appeared in the pool, it is difficult for outsiders to determine whether it still remains in Orchard or has gradually flowed out through normal transactions.

More critically, Orchard is not a completely isolated black box. Users can migrate assets between different pools, and both genuine ZEC and potential counterfeit ZEC could become mixed within the pool.

The Zcash ecosystem can emphasize that currently, no evidence of the vulnerability being exploited has been found, and it can also state that the probability of malicious exploitation is low. But for traders, "no anomaly detected" and "proven to be safe" are not the same thing.

This is the core reason for ZEC's continuously expanding decline. Until the question of whether counterfeit ZEC ever appeared in Orchard is proven, the credibility of ZEC's supply will remain under a cloud.

Arthur Hayes Liquidates, Triggering a Market Confidence Crisis

Following the exposure of the ZEC vulnerability, BitMEX co-founder Arthur Hayes' public liquidation further amplified market panic.

Arthur Hayes stated on X that he had sold all his ZEC holdings. Hayes mentioned that he learned of the attack yesterday but didn't realize how much it conflicted with his narrative framework. The 30% drop in ZEC prompted him to rethink and decide to take full profits on the position. He added that while he believes the probability of additional minting is extremely low, he cannot formally prove its impossibility at the cryptographic level. He will continuously reassess his judgment; if the assumption is proven false, he will buy back, hoping to accumulate at a lower price. He noted that privacy is priceless and wouldn't mind buying back at a higher price.

This has been highly damaging to ZEC. For some time, Arthur Hayes had been a significant narrative driver for ZEC. His bullish outlook was based on the long-term logic of privacy assets being revalued amid the expansion of AI, government surveillance, and big tech companies. Therefore, his liquidation is not just a large holder taking profits; it seems more like a public downgrade of ZEC's current narrative.

When a leading narrative supporter chooses to exit first, long positions previously sustained by faith and expectations can more easily shift towards collective profit-taking and risk aversion.

## Community Sentiment Spirals; ZEC's Price Correction Turns into a Crisis of Trust

Potentially influenced by Arthur Hayes' liquidation, community discussions about ZEC quickly shifted from "should we buy the dip?" to "can we still trust it?"

On one hand, the community repeatedly emphasized the severity of the vulnerability itself. Compared to the short-term price drop, many users are more concerned that a vulnerability theoretically capable of creating unlimited counterfeit coins lay dormant within Orchard for nearly four years. For them, the price decline is just a surface phenomenon; what truly shakes confidence is that Zcash's core security assumption has been called into question.

On the other hand, the process of AI-assisted discovery further exacerbated distrust. Taylor Hornby, with the help of AI tools, conducted a targeted review of the Orchard circuit, ultimately discovering the vulnerability and writing an exploit program to generate counterfeit ZEC in a local environment. Although AI did not independently complete the audit, the community more easily remembers the narrative of a "critical vulnerability existing for years being discovered with AI's help in a short time," which spread rapidly.

This turned public scrutiny towards the Zcash development and audit system. The community questioned why a vulnerability existing since 2022 could operate unnoticed on the mainnet for years. If a core privacy pool can have such constraint omissions, how can users trust Zcash's commitments to supply integrity and privacy security again?

Therefore, this decline is not merely about profit-taking. Until Zcash provides a more convincing proof, no one is truly willing to hold ZEC long-term.