Crypto Has a Privacy Conundrum

The privacy conundrum is already present in the crypto sector and is not going away. Blockchain technology excels at transparency and immutability, but the game comes up a little short when it comes to ensuring the privacy of its transactions.

Over 560 million users hold crypto globally worth more than $3 trillion, but it still pales in comparison to $26.3 trillion held by the 100 largest asset holders and the potential they possess. Lack of privacy is one of these institutional investors’ key concerns.

Bitcoin’s always been transparent (public ledger since 2009), but early obscurity (pre-Chainalysis days) meant less tracking. Now, with tools like Elliptic and automated bots, it’s a fishbowl. As a result, the privacy-transparency debate is raging, and reconciling the two could be the key to crypto’s future.

All major crypto holders and their wallet addresses are identified and tracked endlessly. While this is great for transparency purposes, big money holders will want something more in the future when it comes to protecting and hiding their identities when required.

The looming threat of crypto regulations is another important factor in determining the future course of action of crypto. Many jurisdictions around the world are enacting new rules governing the digital asset economy—KYC/AML (e.g., FATF financing, MiCA 2024). Among these regulations is the requirement of transparency, and the states may demand that the users have their transaction data tracked for oversight.

For instance, Binance was fined $2.25 million by India's Financial Intelligence Unit (FIU-IND) in 2024 for violating anti-money laundering (AML) laws.

Panther Protocol recently engaged in a series of professional discussions with traditional finance investors. While they praise the digital currency’s progress, they raised major concerns regarding crypto’s ability to shield their transactions from the members of the public. For many, a transparent blockchain is not suitable for their big investments.

Something needs to be done in the near future so that the groundbreaking benefits of the digital currency economy are still firmly in place.

Why is Privacy Crucial for Conventional Investors?

In traditional finance, privacy is a crucial requirement as it is an expectation, not an exception. Banks do not publish the records of their customers’ day-to-day operations, and customers trust them with their financial data. Crypto transactions, on the other hand, are a complete antithesis of this closed doors approach, allowing anyone to access data anytime, anywhere.

For traditional investors, this overdose of transparency presents the following challenges:

• Avoiding the Surveillance Economy
• Security Vulnerabilities
• Loss of Sovereignty
• Exploiting Information
• Institutional Reluctance

Technologies to Help Improve Privacy in Crypto

There is an immediate requirement to develop technologies that will help companies thrive and preserve their financial activities.

The key aspect to note here is that these innovations need to be carried out in a way that doesn’t threaten the primary benefits of the blockchain revolution, or else the appeal won’t be there.

The challenge is not choosing between transparency and privacy but rather designing systems that support both.

Zero-knowledge proofs are used by some privacy-focused digital currency networks like Zcash. They allow transacting parties to engage in activity without revealing the underlying data associated with them.

Multi-party computations are another approach used to help improve the privacy function of blockchain transactions. The idea here is to compute a function jointly and avoid being linked back individually to one transaction. This has been useful for custody-related solutions.

Advancing Privacy Solutions in Crypto

As the blockchain economy evolves, efforts to advance privacy-focused technologies are gaining traction. The Panther Protocol Foundation (PPF) is one organization driving this shift, looking to advance the use case of privacy-focused technologies in the blockchain economy. The organization aims to adopt these technologies in DeFi by funding research and development via open-source contributions. PPF wants to ensure that privacy concerns associated with the digital currency sector remain at the forefront of new research and are not swept under the carpet.

PPF is committed to supporting:

• Developing infrastructure for privacy-enabled transactions.
• Compliance with regulations regarding user confidentiality
• Decentralized decision-making in crypto through its Panther DAO by discussing critical ideas within the community regarding the future of privacy in crypto

PPF is building tools like zAccounts and KYC/KYT functionality to help improve privacy and the regulatory side of things in crypto.

Why Privacy Could Shape Crypto’s Future

The crypto sector’s got a lot going for it—over 560 million users and $3 trillion in play—but privacy’s still a sticking point. Transparency’s great for trust, but it’s not enough when institutional investors, sitting on $26.3 trillion, hesitate because their transactions are wide open. Without some way to balance the both, big money might stay on the sidelines.

As time goes on, the future could see digital currency hitting heights traditional finance can’t touch.

The season is not here yet, but it’s approaching.