Aztec CEO: Thoughts on the Future Development of Privacy Networks Based on the Tornado Cash Sanctions

Written by: Zac Williamson, Aztec CEO

Compiled by: TechFlow

Given the Tornado Cash sanctions, I’d like to share some thoughts on the future of privacy networks. While the current situation appears bleak, there are still reasons to remain optimistic about Web3’s future — here’s why.

Treating open-source cryptographic software as a sanctioned entity is a step backward — it reminds me of the 1990s, when sharing encryption software could label you an international arms trafficker.

1. What comes next?

The future web can protect user privacy while aligning with regulators’ goals — but not within existing regulatory frameworks.

Regulators will need to make meaningful adjustments. Given this week’s events, that may seem unlikely — but it’s inevitable.

Why? Because the U.S. government’s current approach cannot achieve its strategic objectives.

Before diving into that, let me outline what privacy networks might look like in the near future:

1. Private by default

2. Fully decentralized

3. User-side compliance: users can selectively prove aspects of their identity, e.g., absence from sanctions lists

4. Open and programmable

Programmable privacy will unlock exponential growth opportunities for cryptocurrency. Once users can link encrypted identities to crypto accounts, off-chain assets can be issued and traded on-chain without custodial intermediaries.

Visionary governments may consider issuing base currencies directly on networks like Ethereum. Combined with robust real-world asset integration, private self-custody, and low barriers of open networks, we could witness the dawn of a new financial renaissance.

2. The consequences of privacy

The openness of decentralized privacy networks will lead to two very different, contradictory outcomes:

"Compliant networks": applications and digital currencies that follow existing laws and regulations — but require updated rules tailored to crypto apps and digital currencies.

"Darknets": applications and digital currencies with no built-in compliance at the protocol level.

From Western governments’ perspectives, the latter is understandably undesirable. Yet compliant networks can only exist if darknets are tolerated at the network layer. Why?

In decentralized networks, there is no arbiter, auditor, or third party who can determine whether an application is compliant. Decentralized networks are permissionless by design and necessity.

Continuing down the path set by the Tornado Cash ban will prevent compliant networks from emerging, as legitimate use cases vanish under fear and uncertainty.

3. Where do we end up?

There is a place for regulation in Web3 — but not at the network layer. It belongs at the application layer: companies and entities leveraging Web3 to serve users and businesses, such as fiat gateways and custodial wallets for cryptocurrency.

For the U.S., requiring exporters to use Tornado Cash compliance tools — rather than imposing blanket bans — would be far more effective.

It's frustrating because we've already lived through this with the web. We don't arrest internet service providers over data flows, nor do we punish DNS providers for signing illegal traffic. For Web3 to grow, it must maintain credible neutrality.

4. Will regulators see the light?

Current approaches fail to meet U.S. strategic goals. North Korean hackers will still use Tornado Cash (or clones), and problematic service providers will continue operating in the shadows for bad actors who meet certain criteria.

These actions also undermine dollar dominance. The damage done to USDC is immeasurable — centrally backed dollar stablecoins now carry a risk premium. In hindsight, the Tornado Cash ban will be seen as self-sabotage, limiting America’s ability to capture the wealth and jobs generated by this revolutionary industry.

I do understand the motivation behind U.S. regulators’ actions: a disruptive new technology has emerged that undermines their enforcement capabilities. To not fully ban Tornado Cash would be to admit their power has diminished.

But here’s the problem: they’re not fighting individuals or institutions — they’re fighting technology. Trying to ban cryptographic algorithms is like trying to ban mathematics.

The reality is that decentralized cryptocurrency networks have already reduced nations’ ability to enforce regulation (the Tornado Cash ban won’t stop North Korean hackers). Pretending otherwise only harms their own interests.

Nations can reclaim much of that power — but only by collaborating with well-intentioned actors in Web3 to build a new regulatory framework that acknowledges the changed landscape. The first Western country to solve this will be the first mover.

In my view, the key players we’re building for haven’t yet fully emerged in our nascent industry. The technology we’re developing isn’t advanced enough to meet their needs, and heavy-handed regulation risks killing the innovation required to get there.

If we can’t control our finances, we aren’t truly free. Without financial privacy, we cannot control our finances.

This is just the beginning of a long, grueling war of attrition. But I believe that after exhausting all alternatives, regulators will gradually move toward a future where user privacy is protected and celebrated.

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