Zcash Just Proved Why Formal Verification Matters | Cardano & Midnight
Episode by Peter Bui on June 8th, 2026
Zcash’s recent Orchard vulnerability did more than knock confidence in one privacy-focused network. It forced the wider crypto industry to confront a harder question: what happens when a serious flaw appears inside a system designed to hide its state from public view? In Peter’s latest episode, that question becomes the bridge into a broader discussion about formal verification, high-assurance engineering, and why those ideas are suddenly looking less academic and more essential.
The episode starts with the market reaction, but the real focus is the engineering lesson underneath it. Rather than treating the story as another round of crypto drama, Peter uses it to explain why Cardano’s long-standing security-first culture matters and why Midnight’s privacy model could benefit from that same mindset.
Why the Zcash flaw mattered so much
The vulnerability disclosed around Zcash’s Orchard pool was serious because it touched the integrity of the asset itself. As Peter explains in the episode, the disclosed flaw could have allowed counterfeit ZEC to be created within the private pool. That would be a major event on any chain, but it becomes even more consequential in a privacy-preserving system where transaction visibility is intentionally limited.
That is why the fallout extended beyond price action. Commentary from sources like the Zcash community forum, Decrypt, and CoinDesk all pointed back to the same core issue: privacy strengthens confidentiality, but it also raises the bar for proving what did or did not happen after a bug is discovered.
Privacy changes the audit problem
One of the episode’s strongest points is that privacy systems create a different kind of risk profile. In a transparent chain, on-chain activity can often be inspected directly. In a shielded system, that visibility is intentionally reduced. That is a feature for users who need confidentiality, but it also means failures can be harder to audit retrospectively.
Peter is careful not to overstate the case. He notes that the Zcash Foundation said supply checks still appeared intact and that there was no evidence of unauthorised value creation. That nuance matters. The lesson is not that disaster definitely happened. The lesson is that when privacy and money intersect, you need stronger guarantees up front because proving safety after the fact can become much harder.
Why formal verification enters the conversation
This is where formal verification stops sounding like an academic luxury. In the episode, Peter describes formal verification as the use of mathematical methods to prove that software behaves the way it is supposed to behave. For financial systems, and especially for privacy-preserving systems, that kind of assurance can matter more than speed or marketing polish.
Seen through that lens, the Zcash story becomes a case study in why correctness matters early. If the underlying assumptions around proofs, validation, or transaction logic are wrong, users may not just lose confidence in an application. They may lose confidence in whether the asset’s integrity can be trusted at all. That is a much bigger problem than an ordinary software bug.
How Cardano fits this picture
Peter uses the incident to make a broader case for Cardano’s development philosophy. Cardano has often been criticised for moving more carefully than faster-moving ecosystems, but the network’s emphasis on peer review, formal methods, and high-assurance engineering is exactly what gives this approach relevance now. If blockchains are meant to support serious financial infrastructure, then “probably fine” is not good enough.
That framing also helps explain why Cardano supporters often talk about security and correctness with unusual intensity. It is not simply branding. It is a belief that critical infrastructure should be designed to reduce whole categories of failure before they reach production.
Why Midnight could benefit from the same mindset
The discussion then turns to Midnight. Rather than presenting Midnight as just another privacy chain competing for the same niche, Peter frames it as a privacy layer that can extend selective disclosure and confidential interactions to broader blockchain ecosystems. That makes engineering discipline even more important, because the goal is not merely to protect privacy in isolation, but to make privacy usable across larger networks and real-world applications.
In that context, Midnight’s link to a security-first culture matters. If the future of blockchain includes confidential data, selective disclosure, and private transaction logic, then the systems delivering those features need more than good intentions. They need strong assurances that the underlying proofs and smart contract logic behave as designed.
The bigger takeaway
The most useful contribution of this episode is that it takes a timely news event and pulls out the deeper engineering lesson. Formal verification is not a magic shield, and it does not eliminate every risk. But incidents like this make it much easier to see why rigorous design, mathematical assurance, and careful review are worth the effort.
For privacy-focused infrastructure in particular, the standard should be even higher. When the system hides state by design, trust has to come from the strength of the engineering. That is the thread connecting Zcash, Cardano, and Midnight in this discussion, and it is why this episode should resonate well beyond one news cycle.
Key Takeaways
- Zcash disclosed a critical Orchard vulnerability that could have enabled counterfeit ZEC to be created inside its private pool.
- Because Orchard is private, the incident raised deeper concerns about auditability and proving whether a flaw had been exploited after the fact.
- The Zcash Foundation said there was no evidence of unauthorised value creation and that supply checks still appeared intact.
- Formal verification is presented as a practical safeguard for financial infrastructure, not just an academic exercise.
- Cardano’s emphasis on formal methods and high-assurance engineering is positioned as a major long-term strength.
- Midnight is highlighted as a privacy-focused layer that carries the same security-first mindset into selective disclosure and private transactions.
Disclaimer: This content is for educational purposes only. Nothing in this article constitutes financial advice. Always do your own research.
Text Transcript
Zcash plunged 42% after Shielded Labs disclosed a critical vulnerability in the Orchard privacy pool. The bug could have allowed an attacker to mint unlimited undetectable counterfeit ZEC. Following the disclosure, Arthur Hayes liquidated his entire Zcash position. So you may have seen various posts last week about Zcash and this particular vulnerability that was out there.
And I saw this post here, this post, and I thought it was quite interesting that now the wider crypto ecosystem is taking note of formal verification, formal methods in the crypto space now. And personally, I think it’s a bit late for some of these chains, but I’ve got a little bit of a breakdown here for you guys, so you understand exactly what’s going on. So last week we had a vulnerability that was disclosed. This developer here used Claude Code AI to crawl through it and found this vulnerability that existed back in, I think it was in 2022.
So it’s been around for a long time, but allowed users to exploit the chain and mint an unlimited amount of ZEC tokens. And that’s huge in itself. If it happened on any chain, that would have been disastrous. But the thing here is that Zcash, ZEC, is a privacy chain.
So you can’t actually see what is happening on the chain. So it may have very well have been exploited over the last few years. And there’s absolutely no way of proving if it has or hasn’t because it’s private. We don’t know.
We can’t look on chain. We can’t see these transactions and we can’t prove it in any particular way. That’s how privacy works. So this is something that is really consequential for the Zcash community and for crypto in general.
Now, I’m not saying that it was exploited. There’s no proof really. We can’t see, we can’t tell. The Zcash foundation put forward some information about this.
It seems like the supply is still intact and the amount that it should be. So thankfully, nothing substantially bad can be seen has happened. But as a result, still, we have a general crypto ecosystem has lost trust in this platform, this code and its methods of preserving privacy. And you can see that with the massive market crash around Zcash.
I think it went down 43% when I was looking at it at a glance over the weekend. And it is an absolutely brutal collapse for the Zcash community there. Now, this brings me back to formal verification and why this actually matters. So formal verification is the idea of using mathematical proofs to assure that the outcome of something is correct.
So if you’re writing a smart contract, a smart validator, that the outcome is exactly what it should be. So using formal methods of mathematics to actually prove and make sure it’s all correct. And I think this is really important for the entire crypto ecosystem. Every chain out there should be using some thought, some sort of formal verification, formal methods in all their smart contracts to 100% assure that the outcome is correct.
And this is where Cardano comes into play. Cardano from day one has leaned heavily into over-engineering, over-security and formal methods to ensure that all the smart validators, the smart contracts that are on chain are actually doing what they’re supposed to be doing. And this is something that drew me deeply into the Cardano ecosystem. If we are building platforms and layers to actually run the entire world’s financial systems, wouldn’t you want it to work as expected?
I’m looking at all these other chains recently since beginning of this year and all these different protocols, one hack after another. Seriously, there’s billions of dollars just this year alone that have been stolen from all these protocols. All these hackers are coming in, looking at the bridges, looking at these protocols, finding the vulnerabilities and just taking things out. If they had methods of formal verification, formal methods in the smart contracts when developing and building them, a lot of this could have been avoided.
And this is what the approach that Cardano had taken. And I think it is the best approach out there. Now to couple this in, when you’re building a privacy layer like Zcash, you really want to ensure that all of this is taken into account. And this is where Midnight comes into play.
Midnight has taken a lot of this high assurance engineering, these formal methods and integrated into their privacy proof layer as well. And the really cool thing about Midnight is that it isn’t locked into any one particular chain. It isn’t a chain that is competing against Zcash, against Monero. It is an abstraction layer, abstracting itself to allow all of the big chains out there, such as Bitcoin, XRP, Solana, Ethereum, all of them, BNB chain, whatever it might be, all the big chains out there to tap into Midnight and have privacy preserving features, such as the selective disclosure and privacy transactions, but not need to use a completely different chain.
Not to move all the value to a different chain, but to use Midnight just to prove that certain things have happened and to allow that privacy level to happen within the ecosystem itself. So this is something that is really attractive about Midnight to ensure that one, we have highly secure private transactions, but then two, also integrate it into existing systems and existing blockchains. And that’s something I’m really excited about and something that Midnight really has to offer for the whole crypto space. So now formal methods, formal verifications, it’s not just a nice to have for academics.
It is suddenly the thing to have in your smart contracts to ensure that things work the way that they should. Formal verification is no longer just over-engineering and this security first approach is no longer just a slogan, but is a serious mantra, a serious mandate, a serious way of coding and developing smart contracts. And I think it should be the way that they should have always been. If you got something out of this content, if you enjoyed it, I know this one’s short and sweet, but it’s something to really think about and bring up.
Formal verification is absolutely critical, but if you like this video, if you got something out of it, hit that thumbs up, like, subscribe, notification bell. I’ve got a YouTube membership somewhere down below in the description down there. I’ve got to buy me a coffee links as well that appear and you can support me that way as well. Any type of support is really appreciated, but if you can’t do any of that, totally fine.
Just hit that thumbs up, share this video or leave a comment down below. All of that works the YouTube algorithm. I’ve also got this thing going on here, Push for Better push-up challenge. It’s all about raising awareness around mental health and suicide prevention.
So please check that out. This is my proof of push-ups here. Anyway guys, like always, stay positive. It’s pretty brutal in the crypto space at the moment and looking at the stock markets around the world, it’s not looking any better.
So please stay positive and I’ll see you guys in the next video.
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