Privacy Coins: The Sacrifice in the Mainstreaming of the Crypto Industry
TechFlow Selected TechFlow Selected
Privacy Coins: The Sacrifice in the Mainstreaming of the Crypto Industry
The era of privacy coins is over, but the privacy track remains.
Navigating Web3 tides with focused insightsAuthor: Jessy, journalist at Jinse Finance
At the start of 2024, privacy-focused cryptocurrencies faced a heavy blow from exchanges. OKX first delisted tokens including XMR, DASH, ZEC, and ZEN, followed by Binance's delisting of XMR on February 20.
Officially, Binance cited reasons such as “requiring Monero deposits to originate from publicly transparent addresses,” while OKX referenced “triggering delisting rules and potential high-risk classifications.”
However, the real reason behind these delistings is that exchanges are seeking to comply with regulatory demands.
This isn't the first time exchanges have delisted privacy coins. Binance previously removed privacy tokens in certain regions, and exchanges collectively delisted them in South Korea, among other examples.
Delisting privacy coins inevitably reduces their liquidity and accessibility. This situation fundamentally reflects how the crypto industry is sacrificing privacy coins as a gesture of compliance toward regulators.
Behind this phenomenon lies a deeper question for ordinary users to consider: Is privacy demand truly a genuine need? Beyond regulation, have privacy coins already been abandoned by the market? And what is the current state of development within the broader privacy sector?
Privacy Demand Is Genuine
Bitcoin, the most widely accepted cryptocurrency, is not fully anonymous. Bitcoin operates as a public, centralized ledger where user addresses and balances are entirely transparent on-chain. Once someone identifies a user’s Bitcoin address, all their transactions become traceable. In the industry, tracking and analyzing on-chain transaction data to profile users and monitor fund flows is standard practice.
Yet one of crypto’s founding ideals was enabling private transfers.
To fulfill this ideal, privacy coins emerged. Monero, launched in 2014, is a prime example of a token designed specifically to meet privacy needs. To many technologists and anarchists, asset privacy is crucial—especially under political sanctions. Monero achieves full transactional privacy through technologies like ring signatures, stealth addresses, and ring confidential transactions.
Beyond privacy coins, tools like the mixer Tornado Cash are also favored by large holders (whales). Experienced whales often use it regularly to conceal their asset positions.
According to Rootdata, there are now over 120 projects related to privacy technology, spanning Layer1, Layer2, privacy coins, email, DeFi, mixers, DID, VPNs, social platforms, and privacy-address wallets.
Notable examples include Umbra, a privacy address tool; Secret, Aleo, and Mina, which are privacy-centric blockchains; and Layer2 solutions like Manta and Starknet.
Even mainstream tokens like LTC have shown interest in privacy tech. Privacy technologies have continued growing steadily, receiving strong support from major VCs. From the VC perspective, privacy is a long-term, high-potential sector that has attracted significant investment from firms such as A16z, Binance Labs, Samsung Ventures, and Sequoia Capital, with valuations reaching billions of dollars.
Regulatory Challenges Facing the Privacy Sector
Despite genuine applications and steady growth backed by capital, the privacy sector remains under intense regulatory scrutiny due to its prominence.
Privacy coins are the primary target. Due to their characteristics, they frequently appear in illicit activities such as darknet crime, money laundering, and ransomware attacks. Because of these associations with illegal activities, governments around the world often accuse privacy coins of facilitating financial crimes. Their delisting from centralized exchanges reflects exchanges’ efforts to comply with—or surrender to—regulation.
A 2020 report indicated that Australian regulators and banks encouraged crypto exchanges to delist Monero, warning they would otherwise risk being cut off from banking services. Dubai also prohibits Monero under its digital asset regulatory framework. Japan and South Korea have banned Monero from exchanges to combat money laundering and organized crime.
Japan introduced self-regulatory guidelines in June 2018 through its Virtual Currency Exchange Association, banning trading of anonymous currencies. Later, in November 2018, Japan’s Financial Services Agency issued new standards explicitly prohibiting cryptocurrencies with high anonymity and money-laundering risks. South Korea followed two years later, announcing in November 2021 an implementation decree for amendments to the "Special Financial Information Act," which prohibits virtual asset service providers from trading anonymous coins or handling assets with money-laundering risks—effectively removing all anonymous coins from the Korean market.
Under pressure from global regulations, even before the recent wave of delistings, Binance had already stopped offering Monero, Zcash, Dash, and 9 other privacy coins to users in France, Italy, Poland, and Spain as early as May 31, 2023.
It's not just privacy coins—other protocols and applications in the privacy space haven’t escaped either. In 2022, the privacy mixer protocol Tornado Cash was sanctioned by the United States. The consequences included regulatory crackdowns, suspension of the founder’s GitHub account, project code repositories, website domains, USDC contracts, and RPC services (previously provided by Alchemy and Infura).
Clearly, the biggest challenge facing the privacy sector is regulation, which directly limits access to privacy products. However, users with strong privacy needs will still find alternative ways to obtain these tools. The real issue, though, is that the number of such users may not be large enough to sustain widespread adoption.
Privacy Coins Are Not the Only Option for Meeting Privacy Needs
For privacy coins, perhaps the greatest threat isn’t regulation—but competition from other innovations within the same space.
First, mainstream cryptocurrencies are entering the privacy arena by adding privacy features. For instance, Litecoin implemented MimbleWimble in 2022, allowing users to send confidential transactions where only sender and receiver know the amount, and enabling MWEB addresses to hide account balances. However, this upgrade led to Litecoin’s removal from Korean exchanges because it violated local anti-money laundering regulations.
At the end of 2022, Vitalik published an article proposing privacy solutions for Ethereum, introducing EIP-5564—the so-called stealth address proposal. Stealth addresses are one-time wallet addresses that allow ownership of assets without revealing any wallet address or user identity. They enable recipients to remain anonymous, preventing any public linkage between sender and receiver identities on the blockchain.
The Ethereum ecosystem has long advanced privacy protection using ZK technology. Vitalik emphasized that ZK-SNARKs will be as important as blockchain itself in the next decade. Recently, Ethereum Layer2 networks built on ZK technology have begun launching one after another.
It's easy to see that once mainstream cryptocurrencies integrate privacy functions, they gain far wider reach than dedicated privacy coins.
Privacy technologies continue advancing. Currently, the four dominant approaches in the industry are zero-knowledge proofs (ZK), trusted execution environments (TEE), secure multi-party computation (MPC), and homomorphic encryption (HE). Most privacy-focused blockchains are built upon one or more of these techniques. Among them, ZK, MPC, and HE are cryptography-based, while TEE relies on hardware design.
Zero-knowledge proofs offer a method to cryptographically prove knowledge of specific information without revealing the details. This technology became widely known through Ethereum’s ZK-rollups. There are several implementations of ZK, including ZK-SNARKs, ZK-STARKs, PLONK, and Bulletproofs, each with different trade-offs in proof size, proving time, and verification time. For example, the privacy protocol Tornado Cash uses zero-knowledge proofs.
Trusted Execution Environments (TEE) provide isolated zones separate from mobile operating systems to protect sensitive user data. This is currently the most mature technology, used by networks like Secret Network and Oasis Network.
Secure Multi-Party Computation (MPC) enables multiple parties to jointly perform computations on private data without exposing their individual inputs. It resolves the tension between data confidentiality and data utility. Key techniques in MPC include secret sharing, oblivious transfer, garbled circuits, homomorphic encryption, and zero-knowledge proofs. Today, MPC is most widely applied in wallets and asset custody solutions.
Homomorphic Encryption focuses on secure data processing, allowing operations on encrypted data without exposing the original content. Some public blockchains employ this technology; Fhenix, a confidential blockchain powered by homomorphic encryption, raised $7 million in seed funding last year. Following the ZK boom, this approach has become one of the most pursued infrastructure solutions by investors.
Clearly, privacy technologies have already permeated various aspects of the crypto ecosystem. For users, privacy coins are no longer the only way to achieve privacy.
The Era of Privacy Coins May Be Over, But the Privacy Sector Lives On
Privacy coins saw concentrated development between 2014 and 2017. Their projects and technologies are now mature, with little remaining technical differentiation, leading to fierce competition among them.
For average users, however, the technical barrier remains high, resulting in low adoption rates across the broader crypto community. Market demand for privacy is limited, and combined with regulatory crackdowns, privacy coins have indeed lost popularity—they’re gradually becoming niche tools for a small group of tech enthusiasts.
Dr. Duncan S. Wong, a core technical developer of Monero, stated that fully anonymous tokens will no longer be popular. Instead, cryptographic tokens that offer complete privacy for individuals and the public, while remaining accountable to regulators and auditors, will gradually enter the mainstream.
Even on darknet markets, Bitcoin remains the dominant currency. In practical usage, people tend to prefer tools like Tornado Cash to obscure their transaction behavior and wallet addresses—because this allows them to use familiar mainstream currencies rather than cumbersome, illiquid privacy coins.
Moreover, most privacy coin holders aren’t using them primarily for privacy purposes, but rather betting on future price appreciation. In contrast, users of mixers are almost exclusively motivated by actual privacy needs.
Thus, for most users, privacy coins are neither an economical nor practical solution for meeting privacy needs—after all, every holder bears part of the cost required to maintain privacy functionality.
Privacy coins are increasingly becoming sacrificial offerings as the crypto industry pushes toward mainstream acceptance. As the development of cryptocurrencies progresses, regulators cannot remain passive—and the industry responds by offering up privacy coins. The widespread delisting by centralized exchanges clearly illustrates this dynamic.
Highly technical, niche innovations rarely achieve mass adoption—not just in cryptocurrency, but in many areas of real-world technology as well.
Privacy coins may become casualties in crypto’s journey toward mainstream status, but cryptographic innovation will not stop. These technologies will continue evolving and integrating into new crypto projects. The privacy sector remains one of the industry’s most important frontiers.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
