The digital world often feels like a glass house. Every click, every transaction, leaves a trace. For many in the crypto space, this feeling sparked a quiet revolution decades ago. They dreamed of financial freedom, built on code, not on the shifting sands of government promises.
- The cypherpunk movement, born in the 1990s, championed using encryption for privacy and financial freedom, aiming to build protections through code rather than relying on government guarantees.
- This ethos inspired privacy-focused cryptocurrencies like Bitcoin, Monero, and Zcash, and continues to drive advocacy for financial privacy in the face of regulatory pressure.
- Finding a middle path between radical privacy and regulatory compliance is crucial for mass adoption, suggesting solutions like zero-knowledge proofs and selective disclosure over absolute anonymity.
This dream had a name: cypherpunk. In the 1990s, cryptographers and activists circulated manifestos. They spoke of using encryption to defeat government surveillance. Privacy became almost sacred to them.
The Cypherpunk Dream and Its Echoes
Eric Hughes, one of the movement’s founders, wrote in 1993, “cypherpunks write code.” He meant they would build their own protections. They wouldn’t wait for governments to grant freedoms. John Gilmore, another early figure, wanted guarantees “with physics and mathematics, not with laws.” He aimed to keep even the NSA at bay.
This radical spirit gave birth to Bitcoin. It also inspired coins like Monero and Zcash. These were designed to make transactions truly untraceable. The idea was simple: your money, your business.
This commitment to privacy only grew stronger under pressure. When U.S. authorities sanctioned Tornado Cash in 2022, the crypto world reacted. Vitalik Buterin, Ethereum’s co-founder, publicly defended his use of the mixer. He said it was for charitable donations.
Advocacy groups challenged the sanctions. They called the move unconstitutional. Privacy coin usage surged in response. Monero, for example, hit all-time transaction highs. This happened even as exchanges delisted it.
By 2023, over 25 Bitcoin companies joined forces. They stood against proposed anti-mixer rules. Leaked 2025 DeFi KYC mandates also sparked fierce online backlash. People clearly want financial privacy. But passion alone won’t solve this standoff. Both sides have valid concerns. The debate, however, has become rigid. It’s an all-or-nothing fight. What we need is a middle path.
When Regulators Push Back
This absolute stance on privacy sounds noble. In reality, it pushes away the very institutions that could make blockchain technology useful. Regulators see complete anonymity as a non-starter. This creates a difficult situation.
Due to regulatory pressure, major exchanges have dropped privacy coins. By 2025, 73 exchanges worldwide had delisted them. The European Union will effectively ban “anonymity-enhanced” cryptocurrencies from regulated services by 2027. Japan and South Korea already prohibit exchanges from listing them.
Francisco Cabanas, a Monero developer, told Reuters that the currency “doesn’t selectively encourage crime, it encourages commerce.” That’s a fair point, I think. But governments see things differently.
The impasse benefits almost no one. Perhaps criminals gain something. They represent a tiny fraction of users. Yet they generate outsized headlines. It’s a strange irony.
Most criminals, it turns out, still prefer Bitcoin. This is according to Chainalysis. Bitcoin is more liquid and easier to cash out. This holds true despite its traceability. Privacy coins, for all their untraceable features, often lack the market depth criminals seek.
Cryptocurrency was supposed to democratize finance. Instead, privacy maximalism has made it harder for ordinary people to access privacy tools. Monero has been pushed into obscurity on regulated exchanges. Even Zcash, which lets users choose between transparent and private transactions, faces delisting pressure. Zcash has even tried to work with policymakers. The technology itself works brilliantly. The politics, however, do not.
We need to face an uncomfortable truth. Radical privacy does not scale. It fails to build the trust needed for mass adoption. Everyone celebrates privacy until their funds vanish into an irreversible, untraceable void.
There’s a reason most Zcash users still transact transparently. It’s not just about technical friction. People want recourse. They want the option to prove where money came from. They want to defend themselves in a dispute. Total anonymity sounds liberating until you need to show you are not a criminal.
Finding Common Ground for Privacy
The answer is not to abandon privacy. It means building compliant privacy into the system from the start. Technologies like zero-knowledge proofs already make this possible. ZK-SNARKs (zero-knowledge succinct non-interactive arguments of knowledge), the cryptographic wizardry behind Zcash’s shielded transactions, let you prove something is true without revealing the underlying data.
Vitalik Buterin proposed “Privacy Pools.” Users could show, using zero-knowledge proofs, that their funds do not come from blacklisted sources. This achieves both anonymity and regulatory assurance. He said this could serve as “neutral infrastructure for bringing public blockchains into regulatory compliance.”
Critics will always worry about government appetites for data. They fear disclosure will creep beyond legal limits. They see unfettered surveillance as the end result. But what if we embrace technology that allows selective disclosure? We can then ask, “Isn’t this what you asked for?”
This is pragmatism. It is not surrender. The alternative is far worse. Corporations and institutions would retreat into permissioned blockchains. These contradict everything cryptocurrency was meant to achieve. If public blockchains cannot meet basic legal needs for disclosure, enterprises will build walled gardens. They will control everything. We would end up with the centralization the cypherpunks feared. Just in different clothes. Three cheers for that, I guess?
Some critics argue that any compromise weakens the whole system. They say selective disclosure creates backdoors. But this view ignores reality. Both Monero and Zcash already have view keys. These let users voluntarily reveal transaction histories. They can show them to auditors or investigators. The key difference is user control. These features remain user-controlled, not automatic. That is not a flaw; it is a feature. It respects individual choice while allowing compliance when needed.
Our argument should be clear. This is what regulators and politicians have asked for. Let technology be the fix. Coinbase and others have asked regulators for decentralized IDs and zero-knowledge proofs. They want these to be valid identification methods. I believe this is the right path forward.
The stakes are higher than ideological purity. Privacy coins represent only 11.4% of cryptocurrency transactions globally. Their market share is not growing fast enough to matter much. Yet the technology under them is powerful. Ring signatures, stealth addresses, zero-knowledge proofs. These could change how 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 stays stuck in 1993. That was when cryptographer Phil Zimmermann released PGP encryption. It was a deliberate provocation against government bans.
The core of the cypherpunk vision, as I see it, was not about absolute secrecy. It was about returning power to individuals. It meant letting people “selectively reveal” themselves. Not living under constant surveillance. That goal is still worth fighting for. But selective revelation needs flexibility, not dogma. It means seeing privacy and transparency not as opposites, but as points on a spectrum. Finding the right balance matters more than defending theoretical absolutes.
Unless more voices in cryptocurrency embrace this position, privacy will remain either illegal or impractical for most users. That is not an outcome anyone should want. The technology exists to do better. What is missing is the will to move beyond purity tests. We need to build systems that actually work in the world as it is.
