Auditable Privacy Holds the Key to Crypto’s Future
Throughout history, every financial system that has emerged has made a commitment to privacy. Since the inception of commerce, gold coins and cash have served as genuinely private means of conducting transactions. In today’s landscape, banks inform customers that their account balances are private, while credit card networks guarantee merchants that transaction details remain exclusive to involved parties. The entire financial system was built on the foundation of privacy as a core principle, yet somewhere along the journey, blockchains have undermined that commitment. For over ten years, the crypto space has functioned with a transparency-first approach. Every transaction, every balance, and every counterparty relationship is transparently recorded on a public ledger, regardless of whether the chain functions as an L1 or an L2. The rationale was straightforward: transparency mitigates fraud and facilitates trustless verification. However, with stablecoins processing more than $27 trillion in annual volume and institutions gearing up to transition treasury operations, that trade-off is becoming increasingly irrelevant. Privacy has evolved into an essential component, no longer reserved for a select few. Instead, it has become essential for any system aiming to manage real money at scale. The pursuit of privacy dates back further than many might think. While compiling my latest report on the topic, it became clear that the broader narrative of how we arrived at our current situation remains largely unknown to many. In the 1990s, David Chaum developed DigiCash, a pioneering system that employed blind signatures to conceal user identities in digital transactions. The project demonstrated technical viability but fell short in the market, garnering merely around 5,000 users prior to its bankruptcy filing in 1998. Chaum later noted that conveying the significance of privacy to the typical consumer at that time proved challenging, ultimately contributing to its decline.
Bitcoin reintroduced digital currency, yet privacy took a backseat to decentralization and resistance to censorship. The initial surge of privacy tools emerged from this, which aggregated transactions to conceal the connection between the sender and the receiver. The tools catered to a niche group of technically savvy users, yet they were cumbersome, often raising flags with exchanges, and were frequently linked to questionable activities. Monero, which made its debut in 2014, adopted a distinct strategy. Privacy became the default, employing ring signatures and stealth addresses to obscure transaction details at the protocol level. On a technical level, it achieved success, yet in practical terms, it faced challenges. Regulators categorized it alongside tools that enabled money laundering, leading to numerous exchanges delisting it. As of today, October 2025, the majority of major U.S. platforms do not provide Monero trading options. The U.S. IRS previously put forth a bounty of $625,000 for anyone capable of unraveling its anonymity, highlighting both its robustness and its challenges: a level of privacy so extreme that it clashes with the regulated environment in which most businesses function. Next up was Tornado Cash, a smart contract mixer operating on the Ethereum blockchain. It was a seamless process: users deposited their funds, received a cryptographic note, and subsequently withdrew to a new address, ensuring there was no on-chain connection between the two transactions. For a period, it was effective. Approximately $2.8 billion was transacted via Tornado Cash from 2019 to 2022. However, following the North Korean Lazarus Group’s laundering of more than $450 million in stolen assets via the protocol, the U.S. Treasury imposed sanctions, leading to the arrest of its developers and a temporary shutdown of the frontend. By late 2022, Tornado Cash had become a virtual ghost town, underscoring a crucial lesson: the pursuit of absolute anonymity can provoke regulatory measures that stifle adoption.
The upcoming wave of privacy solutions has taken lessons from previous missteps. The objective shifted from concealing information from all to empowering users and businesses with the ability to manage visibility and timing of their data. This indicates the creation of frameworks where transactions maintain privacy as a standard, yet can be disclosed to auditors, regulators, or counterparties on a selective basis when necessary. Scroll’s Cloak, a project I co-founded, exemplifies this approach. The system functions as a private ledger, employing zero-knowledge proofs to obscure transaction details while ensuring visibility for authorized entities, including the permissioned sequencer responsible for processing transactions and auditors. The public chain merely provides evidence that the transaction is legitimate, without revealing any details about its contents. This design addresses two critical issues simultaneously. For users and businesses, it provides the confidentiality that traditional finance often assumes. Meanwhile, for regulators and compliance teams, it maintains the capability to investigate suspicious activities, enforce sanctions, and ensure adherence to regulations. It’s about ensuring privacy comes with accountability, rather than using privacy as a cover for illicit activities. After years of research and observing what works (and what didn’t), that distinction holds greater significance than the underlying technology itself. It has become evident that institutions are unlikely to channel significant volumes through platforms that reveal every treasury transaction to rivals. However, they are equally disinclined to adopt systems that hinder compliance efforts. The middle path, auditable privacy, stands out as the only approach poised for scalability.
It’s evident that stablecoins have successfully established a product-market fit. They operate at a speed that outpaces traditional banks, incur lower costs compared to credit cards, and are accessible from any location with an internet connection. Examining the underlying dynamics reveals the primary users of stablecoins: traders seeking to hedge against volatility, crypto enthusiasts navigating various protocols, and businesses in high-inflation regions striving for access to dollars. There is genuine demand present, but it cannot yet be classified as mass adoption. One of the reasons is straightforward — stablecoins currently force individuals to decide between usability and privacy, or between maintaining value and generating yield. Many operate on transparent chains where every transaction is visible to the public — and most necessitate that users handle gas tokens, comprehend wallet infrastructure, and acknowledge that their financial activities are permanently accessible to anyone with a block explorer. Recent launches have aimed to address various aspects of this puzzle. Ethena’s synthetic dollar, USDe, provides yield via delta-neutral strategies, enabling holders to earn returns while remaining within the stablecoin ecosystem. Neutrl is a market-neutral synthetic dollar crafted to unveil hidden yield opportunities in OTC and altcoin markets, with the goal of democratizing high yield. Both signify significant advancements in enhancing the utility of stablecoins. However, neither solution tackles the privacy gap that prevents the majority from fully transitioning their financial lives onto the blockchain. A recent solution is the neodollar, USX, which was designed to address all of the above pain points (Disclosure: USX is built on Scroll, a blockchain protocol I co-founded). It’s a stablecoin designed for those who prefer to avoid the complexities of crypto infrastructure entirely — it’s stable, spendable, private, and productive — functioning as digital cash was always meant to. Privacy has evolved beyond a mere feature request from a niche segment of crypto enthusiasts. For crypto to not only survive but also flourish, it must be viewed as an essential necessity.
With significant amounts on the sidelines — global remittances hitting $905 billion in 2024, U.S. 401(k) plans accumulating $8.9 trillion, and total retirement assets surpassing $43.4 trillion earlier this year — the moment is ripe to reintroduce the conversation around privacy into the forefront. Analysts predict that tokenized real-world assets may reach a staggering $15.6 trillion by the year 2030. Even stablecoins, with a supply of $302 billion, have yet to make a significant impact. Over the last five years, we have diligently refined our infrastructure, enhancing the efficiency of each chain and accelerating the settlement process. However, efficiency by itself will not bring trillions of dollars onto the blockchain. Individuals and organizations require privacy solutions that allow them to maintain both transparency and usability without compromise. The pieces are gradually aligning. Regulatory clarity is taking shape globally, and it’s evident that numerous institutions are closely monitoring the developments. The future of this technology hinges on whether it can evolve into a cornerstone of a more efficient global financial system or remain limited to a niche community that values privacy over permissionless access. The key factor will be our ability to provide the confidentiality that is considered essential by every other payment system.
