The world of cryptocurrencies has always had a strange relationship with privacy. Cypherpunk dates back to the 1990s, when cryptographers and activists spread a manifesto for using encryption to defeat government surveillance, and privacy has been treated as almost sacrosanct ever since. Eric Hughes, one of the founders of the cypherpunk movement, wrote in 1993 that “cypherpunks don’t wait for governments to protect their freedom; they write code.” Another early cypherpunk, John Gilmore, wanted assurances that would keep even the NSA at bay, “by physics and mathematics, not by law.” This radical spirit gave birth to Bitcoin and inspired coins like Monero and Zcash, which are designed to make transactions completely untraceable.
The cryptocurrency 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 blenders for charitable donations, a move that advocacy groups challenged as unconstitutional. In response, usage of the privacy coin skyrocketed, and despite delisting by exchanges, Monero reached an all-time trading high. By 2023, over 25 Bitcoin companies have united against proposed anti-mixer rules, and the leak of DeFi KYC mandates in 2025 has sparked a fierce backlash online.
This resistance proves that people genuinely want financial privacy, but passion alone will not resolve the impasse. Both sides have legitimate concerns, but the debate has become petrified into a high-stakes conflict. What is needed is a true middle ground, not a loud argument for absolute positions.
Regulatory calculations
The privacy absolutist position sounds principled in theory. In fact, it is driving away the very institutions and companies that could potentially leverage blockchain technology at scale. Due to regulatory pressure and increasing compliance risks, major exchanges have delisted privacy coins en masse. By 2025, 73 exchanges around the world will phase out cryptocurrencies, and the European Union will effectively ban “anonymity-enhanced” cryptocurrencies from regulated services by 2027. Japan and South Korea have already banned the listing of virtual currencies on their exchanges.
Asked about Monero, developer Francisco Cabanas told Reuters that the currency “does not selectively encourage crime, but promotes commerce.” That’s a valid point. However, regulators deemed complete anonymity insufficient in the early stages, resulting in privacy coins existing largely outside the financial system that most people actually use.
This creates a trap for privacy purists to resist any encroachment, seeing it as a betrayal of the fundamental ideals of cryptocurrencies. Meanwhile, governments and compliance officials see unregulated anonymity as an invitation to money laundering. This impasse probably benefits no one but the criminals. Criminals make up a small portion of users, but they generate outsized headlines.
Contrary to popular belief, most criminals still prefer Bitcoin over privacy coins. That’s precisely because they are traceable, yet more liquid and easier to convert into cash.
The irony is profound. Cryptocurrencies were supposed to democratize finance, but privacy maximalism has made it difficult for ordinary people to access privacy protection tools. Monero has become less prominent on regulated exchanges. Even Zcash, which has allowed users to choose between transparent and private trading and has attempted to engage constructively with policymakers, faces constant pressure to delist. The technology works beautifully. Politics doesn’t do that.
When anonymity becomes a liability
We need to acknowledge the discomfort. Radical privacy cannot scale and cannot build the trust needed for mass adoption.
Everyone celebrates privacy until the funds disappear into an irretrievable, untraceable void. There’s a reason why most Zcash users still transact transparently, and it’s not just technical friction. People are looking for relief. They want the option of proving the origin of their money or defending themselves in a dispute. Complete anonymity sounds like freedom until you have to prove you’re not a criminal.
The solution is not to give up privacy. We build compliant privacy into our systems from the beginning. Technologies such as zero-knowledge proofs are already making this possible. ZK-SNARK, the cryptographic wizardry behind Zcash’s shielded transactions, allows you to prove that something is true without revealing the underlying data.
Vitalik Buterin proposed a “privacy pool” that would allow users to prove through zero-knowledge proofs that their funds did not come from blacklisted sources, providing both anonymity and regulatory guarantees. In his words, this could serve as a “neutral infrastructure to bring public blockchains into regulatory compliance.”
Critics will say that governments’ appetite for on-chain personal and private data is insatiable, and that disclosure will inevitably extend beyond the lawful realm to unrestrained surveillance. But what better way to win over the critics than by embracing technology that allows us to selectively disclose information? We can say, “Isn’t this what you asked for?”
This is pragmatism rather than surrender. The alternative is even worse. Businesses and institutions are retreating to permissioned blockchains, which contradict everything cryptocurrencies were trying to accomplish. If public blockchains fail to address basic legal requirements around disclosure and compliance, companies will simply build walled gardens to control everything. We will have the kind of centralization that cypherpunks feared, just wearing different clothes. Three cheers for that, maybe?
Spectral instead of binary
Critics will say that any compromise weakens the entire organization, and that selective disclosure and responsible privacy create backdoors. But this argument ignores reality. Both Monero and Zcash already have view keys that allow users to voluntarily reveal their transaction history to auditors and investigators. The difference is that these features remain user-controlled rather than automatic. It’s not a bug. This is a feature that respects individual choice while enabling compliance where necessary.
Our argument is that this is what you, the regulators and the politicians, want. Let’s solve it with technology. Coinbase (and others) has asked regulators for decentralized ID and zero-knowledge proofs as valid ID methods. In my opinion, this is the right path.
The stakes are higher than ideological purity. Privacy coins account for only 11.4% of global cryptocurrency transactions, and their market share is not growing fast enough to matter. Meanwhile, underlying technologies such as ring signatures, stealth addresses, and zero-knowledge proofs have the potential to revolutionize the way we think about financial privacy everywhere. Ethereum is considering Layer 2 and Layer 3 solutions to protect privacy. Traditional finance is experimenting with secret transactions. But none of this potential will be realized if the conversation remains stuck in 1993, when cryptographer Phil Zimmerman exposed PGP encryption as a deliberate provocation to government bans.
In my view, the core of Cypherpunk’s vision was not an absolute secret without nuance. It was about giving power back to the individual and allowing people to “selectively reveal” themselves rather than live under constant surveillance. It’s still worth fighting for. But selective revelation requires flexibility, not dogmatism. It means recognizing that privacy and transparency are not binary oppositions but exist on a spectrum, and that finding the right balance is more important than adhering to theoretical absolutes.
Unless more voices in the cryptocurrency industry support this position, privacy will remain illegal or impractical for most users. That’s not the outcome anyone should want. Technology exists to make things better. What is missing is the will to go beyond purity testing and build a system that actually works in the world as it is.
