The Evolution of Privacy Technology: From Anonymity to Verifiable Infrastructure

I. Turning Point in 2025: Redefining the Privacy Sector

In recent years, the privacy domain within the crypto market has been a field rife with misunderstandings and debates. While blockchain transparency is considered a core value, the demand for privacy in finance, commerce, and security has been rapidly increasing.

The second half of 2025 marked a turning point. Privacy assets led by Zcash outperformed the market average, with Zcash achieving nearly 1100% growth since the beginning of the year. Currently, the price of ZCash is $371.06 (circulating market cap of $6.12B), clearly indicating that the market is reassessing privacy technologies that can coexist with compliance.

Traditionally, privacy coins were treated as niche hedge assets, but this recovery reflects a more fundamental shift. Privacy is evolving from a mere anonymity tool to a recognized component of financial infrastructure.

II. Technological Evolution: Paradigm Shift from 1.0 to 2.0

Early privacy solutions (Privacy 1.0) mainly focused on reducing transaction traceability. Monero, early Zcash, Tornado Cash are typical examples. However, they had limitations such as single functionality, non-compliance with regulations, and poor adaptability to complex financial activities.

Between 2024 and 2025, the privacy sector underwent structural evolution. Next-generation projects aim to perform computations and collaborations in encrypted states.

• Aztec Network: Introduces Ethereum-native ZK Rollup, supporting privacy-compatible smart contracts. Developers can define which states to keep private and which to reveal at the programming level. This unique balance of sensitivity and specificity holds potential as a foundation for institutional DeFi.

• Railgun: Functions as a protocol layering privacy over existing assets rather than as an independent chain. The surge in transactions in 2025 reflects users’ practical need to gain privacy without changing ecosystems. Importantly, it has introduced restrictions on sanctioned addresses, aligning with regulatory expectations.

• Nillion/Zama: Broader privacy computation infrastructure. Nillion’s secure computation network emphasizes data storage and calculation without decryption, while Zama enables direct execution on encrypted data via Fully Homomorphic Encryption (FHE). These can extend beyond DeFi into AI inference and enterprise data sharing.

III. From Regulation to Coexistence: Establishing Compliance Privacy

Mainstream regulatory frameworks worldwide, such as the EU’s Anti-Money Laundering Regulation (AMLR), explicitly restrict technologies that enable complete anonymity. However, the industry is shifting from “strong anonymous assets” toward “compliance privacy infrastructure.”

This shift is achieved through three approaches:

1. Selective Privacy: Maintaining compliance interfaces for institutions and exchanges (e.g., Zcash’s option to choose between transparent and shielded addresses).

2. Auditable Privacy: Achieving selective disclosure via zero-knowledge proofs and view keys. The balance of uniqueness and sensitivity allows coexistence of regulatory inspections and personal privacy.

3. Rule-level Compliance: Cryptographically proving regulatory logic during computation, enabling pre-verification rather than post-tracking.

Zcash’s evolution most vividly exemplifies this transition. With Halo 2 proof system, computational costs have been significantly reduced, enabling mobile and institutional applications. The shift from “anonymous coin” to “privacy payment layer” is underway.

IV. Pragmatic Approaches: Multiple Solutions Coexisting

The diversification of privacy infrastructure is progressing:

Umbra (Ethereum/Solana compatible) employs a “hidden address” mechanism to separate each transaction from the main wallet, providing a “hidden cloak” for on-chain payments. It raised over $150 million in ICO in October 2025, gaining market approval. Its “Lego-style” SDK strategy enables low-cost integration into wallets and DApps.

Arcium integrates Multi-Party Computation (MPC), Fully Homomorphic Encryption, and Zero-Knowledge Proofs, dynamically allocating computational resources based on task needs. Supported officially by NVIDIA, it is active at the forefront of privacy AI. Its decentralized dark pool allows large institutional orders to match with full privacy.

MagicBlock (Solana) is based on Trusted Execution Environment (TEE) ephemeral rollups, avoiding the complexity of zero-knowledge proofs. It offers low latency and high throughput, significantly lowering development barriers. While hardware trust limitations remain, it indicates a balance between practicality and implementation efficiency.

V. Outlook for 2026: Privacy Becomes the Default

In 2026, privacy infrastructure will grow not through explosive expansion but via steady and assured penetration.

Technologically: Engineering improvements in zero-knowledge proofs, MPC, and FHE will resolve performance bottlenecks. Privacy will no longer be an “independent protocol” but integrated modularly into accounts, wallets, Layer2, and cross-chain systems. Balancing sensitivity and specificity will become a key technical challenge.

Regulatory: Major economic regions will stabilize their crypto regulatory frameworks. The implementation of market structure laws and stablecoin regulations will accelerate institutional on-chain financial participation, directly expanding demand for compliance privacy infrastructure.

Application-wise: Privacy will become “invisible.” Users will not consciously use privacy protocols, yet their assets, strategies, and identity information will be protected by default. DeFi, AI agents, RWA settlements, and inter-company cross-chain collaborations will treat privacy as a prerequisite.

The true challenge in the privacy field is not “whether to be anonymous,” but whether systems can continuously prove trustworthiness and compliance without exposing data. This capability is the final foundational infrastructure needed for crypto finance to mature from experimental to established.

Risk Warning: The above information is for reference purposes only and should not be considered as advice for buying, selling, or holding any financial assets. All information is provided in good faith, but no explicit or implicit guarantees are made regarding its accuracy, sufficiency, validity, reliability, availability, or completeness.

All cryptocurrency investments are inherently highly speculative and carry significant risk of loss. Past performance does not indicate future results. Please carefully evaluate based on your investment goals, financial situation, and risk tolerance before trading.