The world of cryptocurrencies has always had a strange relationship with privacy. Since its cypherpunk origins in the 1990s, when cryptographers and activists circulated manifestos about using encryption to thwart government surveillance, privacy has been treated as almost sacred. Eric Hughes, one of the founders of the cypherpunk movement, wrote in 1993 that “cypherpunks write code” rather than waiting for governments to protect their freedoms. John Gilmore, another early cypherpunk, wanted safeguards “in physics and mathematics, not laws” that would keep even the NSA at bay. This radical philosophy gave birth to Bitcoin and inspired coins like Monero and Zcash, designed to make transactions truly untraceable.
The crypto community’s commitment to privacy has only intensified under regulatory pressure. When U.S. authorities sanctioned Tornado Cash in 2022, Vitalik Buterin publicly defended his use of the blender for charitable donations, while advocacy groups challenged the move as unconstitutional. The use of privacy coins has increased in response – Monero has reached unprecedented transaction heights even as exchanges delisted it. In 2023, more than 25 Bitcoin companies united against proposed anti-mixer rules and the leak of DeFi KYC 2025 mandates sparked fierce backlash online.
This resistance proves that people actually want financial privacy, but passion alone will not resolve the impasse. Both sides have valid concerns, but the debate has devolved into an all-or-nothing stalemate. What is needed is not stronger arguments for absolute positions, but a real middle way.
The regulatory assessment
In theory, an absolutist position on privacy seems principled. In practice, this scares away institutions and companies that could make blockchain technology useful on a large scale. Due to regulatory pressure and growing risks of non-compliance, major exchanges have been delisting privacy coins en masse. By 2025, 73 exchanges worldwide had abandoned them, and the European Union would effectively ban “enhanced anonymity” cryptocurrencies from regulated services by 2027. Japan and South Korea already ban exchanges from listing them.
Asked about Monero, developer Francisco Cabanas told Reuters that the currency “doesn’t selectively encourage crime, it encourages commerce.” That’s a good point. Yet regulators view complete anonymity as a failure, and the result is that privacy coins exist largely outside of the financial system that most people actually use.
This creates a trap in which privacy purists resist compromise, seeing it as a betrayal of cryptocurrency’s core ideals. Meanwhile, governments and compliance officers view unregulated anonymity as an invitation to money laundering. This impasse benefits no one, except perhaps criminals, who make up a tiny fraction of users but make headlines.
Contrary to popular belief, most criminals still prefer Bitcoin over privacy coins precisely because it is more liquid and easier to cash out, despite being traceable.
The irony is obvious. Cryptocurrency was supposed to democratize finance, but privacy maximalism has made it harder for ordinary citizens to access privacy tools. Monero has been pushed into oblivion on regulated exchanges. Even Zcash, which allows users to choose between transparent and private transactions and which has attempted to engage constructively with policymakers, faces constant delisting pressure. The technology works wonderfully. This is not the case with politics.
When anonymity becomes a handicap
We have to admit something uncomfortable: radical privacy isn’t scalable, and it doesn’t create the trust needed for mass adoption.
Everyone celebrates privacy until their funds disappear into an irreversible, untraceable void. There’s a reason why most Zcash users still transact seamlessly, and it’s not just a matter of technical friction. People want recourse. They want the ability to prove where the money came from or defend themselves in the event of a dispute. Complete anonymity seems liberating until you have to demonstrate that you are not a criminal.
The solution is not to abandon privacy. It’s about building compliant privacy into the system from the start. Technologies such as zero-knowledge proofs make this possible. ZK-SNARKs, the cryptographic magic behind Zcash’s protected transactions, allow you to prove something is true without revealing the underlying data.
Vitalik Buterin proposed “privacy pools” where users could demonstrate, via zero-knowledge proof, that their funds do not come from blacklisted sources, thereby gaining both anonymity and regulatory assurance. As he put it, this could serve as “neutral infrastructure to bring public blockchains into regulatory compliance.”
Critics will say that the government’s appetite for personal and private data online is insatiable and that disclosure will inevitably go beyond what is legal and result in unfettered surveillance. But what better way to beat the critics than to adopt technology that can selectively disclose? “Isn’t that what you asked for?” » we can say.
It’s more pragmatism than abandonment. The alternative is worse: businesses and institutions retreat into permissioned blockchains that contradict everything cryptocurrency is supposed to achieve. If public blockchains cannot meet basic legal requirements for disclosure and compliance, companies will simply build walled gardens where they control everything. We will end up with the centralization that cypherpunks fear, just wearing different clothes. Good for that, I guess?
A spectrum, not a binary
Critics will say that any compromise weakens the whole edifice, that selective disclosure or responsible confidentiality creates back doors. But this argument ignores reality. Monero and Zcash already have display keys that allow users to voluntarily reveal transaction history to auditors or investigators. The difference is that these features remain user-controlled rather than automatic. This is not a bug; it’s a feature that respects individual choice while still enabling compliance when needed.
Our argument should be that this is what you – the regulators, the politicians – have asked for. Let technology be the solution. Coinbase (and others) have asked regulators for decentralized identifiers and zero-knowledge proofs to be valid identification methods. This is, in my opinion, the right path.
The stakes are higher than ideological purity. Privacy coins only account for 11.4% of cryptocurrency transactions worldwide, and their market share is not growing fast enough to matter. Meanwhile, the technology behind them – ring signatures, stealth addresses, zero-knowledge proofs – could revolutionize the way we think about financial privacy everywhere. Ethereum is exploring privacy-preserving Layer 2 and Layer 3 solutions. Traditional finance is experimenting with confidential transactions. But none of this potential will be realized if the conversation remains stuck in 1993, when cryptographer Phil Zimmermann published PGP encryption as a deliberate provocation against government bans.
In my opinion, the core of the cypherpunk vision was not about absolute secrecy without nuance. It was about returning power to individuals, letting them “selectively reveal themselves” rather than living under constant surveillance. It’s always worth fighting for. But selective revelation requires flexibility, not dogma. This means recognizing that privacy and transparency are not binary opposites but exist on a spectrum, and that finding the right balance is more important than defending theoretical absolutes.
Unless more voices in the cryptocurrency space take this position, privacy will remain either illegal or impractical for most users. This is not an outcome anyone should want. The technology exists to do better. What’s missing is the will to move beyond purity testing and build systems that actually work in the world as it is.
