Zano vs Zcash inflation bugs

Similar to the ghost of entropy, inflation bugs have been hunting cryptos since the genesis. While transparent blockchains can easily remove any unauthorized tokens from circulation with simple consensus, private cryptos cannot do so because they are, well, private.

In 2026, two major privacy-focused blockchains, Zcash (ZEC) and Zano (ZANO), suffered from an inflation bug and resorted to very different approaches to solve the issues. Unfortunately, most crypto news outlets fail to explain why Zano erased a month of transaction history, while Zcash simply migrated to another pool, and who ultimately lost money in both cases.

Thus, let us examine the architectures of these two different cryptos to understand why they chose such different paths to handle inflation bugs.

Titanic

Zcash (ZEC) supports both transparent and private assets, so it initiated the migration of private funds from a vulnerable shielded pool, Orchard, to a new pool, Ironwood. Everybody can see how many ZEC tokens enter and exit shielded pools, and no pool can have a negative balance. This means that despite the inflation bug, we can ensure that the total supply of ZEC has not been inflated.

The best analogy is an Ethereum chain, which has transparent addresses and private pools (smart contracts) like Tornado Cash. In very simple terms, Zcash is like Ethereum, but with built-in Tornado Cash. Even if one pool is exploited, the damage is limited to that pool only.

Wait, so who lost money then?

This is very interesting. While the total ZEC supply has not been affected, an exploiter had an option to mint an infinite amount of ZEC tokens inside the vulnerable Orchard pool and withdraw those counterfeit tokens as they look absolutely legit like all other tokens.

The best example is Titanic. When a ship is sinking and there are not enough lifeboats for all passengers, only those who arrived first will be saved.

In other words, if you follow crypto news and have access to your funds, you can withdraw funds from a vulnerable pool ASAP and be safe. However, if you're doing Vipassana in the mountains, your only hope is that there will still be a lifeboat when you finally check the news to catch up. Otherwise, your money is gone.

Luckily, a few months after the migration began, there are still enough lifeboats to leave Orchard. This means either the inflation bug was never exploited, or an attacker withdrew a moderate amount of tokens, a loss that could still amount to millions of dollars.

The Great Rollback

Zano, on the other hand, has a different architecture where all assets are private, similar to Monero. Therefore, the only way to ensure that all counterfeit tokens were removed from circulation was to roll back the chain by one month to the state before the vulnerability was introduced.

So, who lost the money in this case?

Technically, all users who received Zano during an affected one-month period and did not spend those tokens, lost money.

However, giving that erasing a month of transaction history is an unprecedented move, the team decided to recover all affected balances using funds from the dev fund, team members' personal funds, and contributors who pledged their support.

If played well, that will ensure that all victims are reimbursed, unlike in the Zcash scenario. However, this approach requires a significant amount of funds, and users must actively approach the Zano team on various platforms to submit their transaction proofs, potentially compromising their privacy.

Lessons

In both cases, user funds were not affected, and the vulnerabilities were isolated to the creation of unauthorized supply only.

So, which architecture is better?

The answer is none. Zcash and Zano have very different architectures, each with its own pros and cons.

On one hand, Zcash's modular architecture protects the total token supply from being inflated since it limits the damage within separate pools. On the other hand, the blockchain does not provide default privacy, which allows regulators to selectively ban certain pools, creating a room for Ethereum-style compliance.

For example, Tornado Cash got sanctioned in 2022, leading to the rise of compliant pussy pools which empower the state by allowing blockchain surveillance companies like Chainalysis to decide who can get privacy. This anti-cypherpunk tech is being pushed by Vitalik, EF, and the corpo side of Ethereum, which itself is rapidly heading towards becoming a compliant chain.

Zano, on the other hand, does not isolate damage to individual pools, but offers default privacy to all users. Thus, regulators cannot selectively ban specific pools and enforce onchain compliance.

That said, given the dystopian reality we live in, it is possible that regulators may attempt to ban all privacy blockchains, especially in western police states like the EU and the US.