In-depth research report on the privacy coin sector: From the demand for anonymity to the revaluation of value in the era of zero-knowledge proofs

I. Overview of the Privacy Coin Sector

One of the most dramatic themes in the structural rotation of the crypto market in 2024–2025 was the "revival of privacy coins." After being suppressed for a long time by regulatory pressure, exchange delistings, and a cooling narrative, the privacy sector suddenly returned to the spotlight in the second half of 2025: the overall market capitalization of privacy coins exceeded $24-28 billion, with Zcash (ZEC) and Monero (XMR) leading the gains, significantly outperforming the broader market. ZEC, in particular, rebounded from a low of below $20 in July 2024 to around $600-700 in November 2025, a more than 30-fold increase, becoming one of the leading performers in this round of privacy sector growth. Against this backdrop, privacy coins are no longer just synonymous with "dark web assets" or "compliance gray areas," but have been reintegrated into the medium- to long-term asset pool of "digital financial privacy infrastructure."

Since the birth of Bitcoin, discussions surrounding "privacy" in the digital asset world have never ceased. From the initial use of pseudonyms to today's complex and diverse privacy protocols, privacy is not an adjunct to crypto assets, but a fundamental variable permeating "financial freedom—regulatory game—data sovereignty." Bitcoin is not a truly anonymous system; all on-chain transactions are public and transparent. By combining KYC data with on-chain clustering analysis, participants' transaction paths, asset distributions, and even identities can be highly reconstructed. As regulatory technology and on-chain forensics capabilities rapidly matured between 2020 and 2025, privacy gaps in public ledgers such as Bitcoin and Ethereum were fully exposed, driving the evolution of privacy coins such as Dash, Monero, Zcash, and Grin/Beam, forming an "arms race" in privacy technology. Early privacy solutions primarily relied on coin mixing and on-chain mixing technologies. For example, Dash's PrivateSend scrambles transaction paths by mixing inputs and outputs, making it difficult to directly trace "who paid whom." Monero, on the other hand, achieves triple privacy for sender, receiver, and amount through ring signatures, stealth addresses, and RingCT, and has continuously increased the "ring size" and used Bulletproofs to reduce transaction volume in multiple upgrades. Zcash brought zero-knowledge proofs to the mainstream public blockchain world, achieving for the first time "completely hiding transaction content and only disclosing validity proofs." Its dual-track design of shielded and transparent addresses gives users the choice between "privacy and auditing." MimbleWimble further elevates privacy to the block level by aggregating transactions and deleting intermediate data, forming a lightweight chain structure that is both private and highly scalable. These technological solutions have never truly targeted "black market tools," but rather are more like a systemic response to three common needs: trade secrets and pricing privacy, personal asset security, and institutional reflection on the "panoramic data monitoring" by the state and platforms. The 2017 bull market propelled the privacy narrative to its peak, with most privacy coins entering the top 20 in market capitalization, and the market viewing "privacy" as the core of competition for the next generation of cryptocurrencies. However, since 2018, the sector has gradually declined due to factors such as regulatory pressure, early model flaws, and user barriers to entry. Exchanges gradually delisted strong privacy coins, leading to decreased liquidity; the high inflation and founder rewards designed in the early stages of some projects created continuous selling pressure; and the high barrier to entry for privacy technologies themselves meant that actual demand was far less than speculative demand. By 2023–2024, the privacy sector was considered a marginal area, with its market capitalization falling to less than 1%. However, research and development continued quietly: Zcash's NU5/NU6 upgrade removed trusted settings, unified address formats, and introduced Halo 2; Monero continued to optimize ring signatures and privacy proofs; and the MimbleWimble community is still exploring lighter and more anonymous implementations. Technological accumulation did not stop due to price and sentiment, laying the groundwork for a resurgence of the privacy sector in 2025. Entering 2024–2025, the macro environment of the crypto market, regulatory orientation, and sector rotation have combined to bring about significant changes in the privacy sector. Its market value has rebounded from the bottom to $240–280 billion, and the sector has regained institutional attention. There has even been a phenomenon of multiple research institutions providing specialized coverage of privacy assets.

Meanwhile, regulatory pressure and privacy demands are rising in tandem, creating a paradoxical situation. The EU's AMLR has imposed explicit restrictions on "highly anonymous crypto assets," meaning that assets like Monero and Grin, which default to full privacy, may face complete bans or prohibitions on exchange listings starting in some jurisdictions from 2027. The US Treasury Department, Department of Justice, and on-chain analytics companies have used machine learning, large-scale address clustering, and behavioral modeling to track and seize large amounts of Bitcoin, making the "privacy gap in transparent blockchains" a social issue. The reverse demonstration effect of transparent public blockchains has actually prompted the market to re-evaluate the value of privacy coins: in a world with rapidly increasing surveillance capabilities, the need for privacy is no longer a niche characteristic of geeks, but a shared concern for ordinary users, institutions, and cross-border enterprises. Against this backdrop, privacy assets are showing a clear divergence: Monero represents the "strong privacy, unauditable" path, with privacy enabled by default but leading to regulatory resistance and liquidity contraction; Zcash, Secret, and others represent the "compliant privacy" route, supporting both transaction shielding and selective disclosure of transaction records by viewing keys, achieving the minimum transparency required for regulation, clearing, and auditing. This design is more easily accepted by institutions and regulators in policy-friendly regions. The market's revaluation of ZEC largely stems from the fact that its technological architecture and compliance attributes are more sustainable in the future privacy policy environment.

Looking ahead to 2025 and beyond, the privacy landscape is undergoing a historic shift from "privacy coins" to "privacy infrastructure." Privacy is no longer a narrative confined to a single token, but rather a fundamental module within Web3, DeFi, RWA, identity protocols, and financial infrastructure. The future privacy architecture will exhibit at least three evolutionary paths. First, compliant privacy will become the mainstream design philosophy. Selective disclosure mechanisms and key-viewing models are being seen as viable solutions, enabling institutions to find a new balance between privacy and regulation. Second, privacy will be deeply embedded in DeFi and Web3 in a modular fashion. In areas such as decentralized lending, derivatives, NFTs, and on-chain identity, users have an extremely strong demand for "position privacy, transaction privacy, and asset privacy," while technologies such as ZK, MPC, and ring signatures have begun to enter the L2, cross-chain bridge, and application layers. Privacy will shift from L1 competition to a "privacy layer for all applications," and may also become a differentiating weapon in L2. Third, privacy will engage in a profound struggle globally with CBDCs, digital identity systems, and data sovereignty policies. Central bank digital currencies in various countries face the same challenge: how to maintain users' basic financial privacy under anti-money laundering and counter-terrorism financing requirements. Zero-knowledge proofs and selective disclosure mechanisms may be absorbed by central banks and become part of their infrastructure. In other words, privacy technologies may be suppressed, absorbed, or even become standard components of the traditional financial system. The revaluation of the privacy sector in 2025 is not a product of short-term speculation, but a structural return shaped by "technological maturity × regulatory pressure × market reflection × expansion of on-chain monitoring." The long-term value of privacy assets lies not in price fluctuations, but in their response to the most core question of the digital society: when everything is computable, auditable, and archiveable, will humanity still possess its own "financial space"? The future of privacy is neither darkness nor transparency, but a new paradigm that is controllable, authorizable, auditable, but not abused. ZEC's emergence in this round of innovation and compliance trends may be an early signal of this paradigm shift.

II. Investment Value Analysis of Privacy Coins

From an investor's perspective, the most crucial question in determining whether a sector is worth long-term allocation is never "how much it has risen," but rather whether the underlying demand is rigid and long-term. Privacy coins deserve serious study as an independent sector because in the ever-expanding world of on-chain finance, "privacy" itself is shifting from an option to a necessity. As long as you have stable use cases on a public blockchain, once your main address has been linked to your real-world identity (e.g., leaving traces when depositing funds into KYC exchanges or engaging in OTC trading), all your historical transactions, holdings, and fund flows can be algorithmically profiled. This means higher attack risks and strategy exposure risks for high-net-worth individuals, institutional funds, and professional traders: hackers or ransomware attacks can selectively target "large account addresses," and counterparties can use on-chain intelligence to reverse-engineer your position structure and liquidation thresholds. Privacy coins, through address anonymity, amount hiding, and path obfuscation, provide investors with a technical path to "regain financial privacy" within the public financial system. In B2B and supply chain finance scenarios, transaction terms are often extremely sensitive. If all settlement information is exposed on the blockchain, it can easily lead to perceptions of "unfair pricing" among customers and be used by competitors to analyze your cost structure and bargaining power. Therefore, building a settlement network that is "auditable to regulators but opaque to the entire network" is a rigid requirement for enterprises. Meanwhile, from a broader social perspective, cases of privacy data breaches and platform misuse of user data are rampant. The public has gradually realized that "data is an asset," and once leaked, it can be permanently copied, bought, sold, and recombined, while users often don't even know how their data is being used. In this context, the sentiment of "I hope my assets and transaction records are not infinitely exploited by platforms and third parties" provides deep value and cultural foundation for the privacy sector. As on-chain monitoring matures, "blacklisted coins" and "polluted addresses" have become a reality—once an address is associated with hackers or sanctions, its corresponding assets, even after several transfers, may be rejected or even frozen, causing substantial damage to asset substitutability. Privacy coins combat "address discrimination" by weakening path traceability. Tracing back to the fundamental values, privacy is considered a basic human right in many societies with strong liberal traditions. The idea that "what I choose to disclose and to whom I disclose it should be my own choice" is paramount. Privacy coins and zero-knowledge infrastructure can be understood as the technological manifestation of this concept in the financial field. Therefore, as long as the digitization and on-chaining of assets and identities continues, the demand for privacy will not disappear but will emerge in a more systemic way. This determines the legitimacy of long-term research and strategic allocation in the privacy coin sector, rather than being a one-off speculative fad.

From a technological perspective, the privacy track can be roughly divided into several schools of thought and representative assets: CoinJoin/mixing solutions, represented by Dash, are more like adding a one-time mixing tool to the existing transparent ledger, with limited privacy strength; ring signature + ring confidential transactions, represented by Monero, achieves forced, default-enabled deep privacy through ring signatures, stealthy addresses, and hidden amounts, representing the technological destination of "pure anonymity advocates"; the zk-SNARKs route, represented by Zcash, achieves complete hiding of transaction content and only public proof of validity with the support of zero-knowledge proofs, and can be extended to smart contracts and the broader ZK ecosystem; MimbleWimble systems (such as Grin and Beam) tend to favor minimalist protocols and lightweight ledgers, emphasizing block-level aggregation and data pruning, pursuing a dynamic balance between privacy and scalability. In this landscape, Monero is the leading platform with the strongest consensus on strong privacy, boasting the largest anonymity set and the most practical experience, thus naturally becoming a key target of regulatory attention. DASH is closer to the positioning of "digital cash + light privacy features," gaining some adoption in emerging markets due to its payment experience. The new generation of ZK projects attempts to link privacy capabilities with L2 scaling and ecosystem narratives. Structurally, ZEC occupies a very delicate but highly flexible middle ground: on the one hand, it is technically significantly ahead of simple coin mixing solutions and more mature and stable than some MimbleWimble projects; on the other hand, while its privacy strength is not as strong as Monero's mandatory ring signature, its dual-track model of transparent and masked addresses, as well as mechanisms such as viewing keys, provides more natural design space for "privacy + auditing + compliance." With the addition of upgrades like Halo 2, Orchard, and NU5/NU6, ZEC has taken the lead in "removing trusted settings, unifying address structures, and lowering the barrier to privacy transactions." ZEC is not only a privacy coin but has also begun to play the role of a "zero-knowledge technology provider," with its research and development of zero-knowledge proofs having a spillover effect on the broader Web3 and ZK Rollup ecosystems. From an investor's perspective, ZEC can be understood as a typical "high-beta leader": enjoying the beta of the entire privacy sector while gaining additional alpha through its technological moat and compliance potential.

The surge in ZEC's price in 2024–2025 was not driven by a single catalyst, but rather by the convergence of a series of medium- to long-term variables within the same timeframe. Firstly, regarding supply and valuation, Zcash followed Bitcoin's pattern of total supply and halving curves. After years of price decline and cooling sentiment, the second halving in 2024 further compressed the block reward to 1.5625 ZEC, significantly reducing the inflation rate, decreasing the amount of ZEC miners could sell, and simultaneously lowering the actual amount of ZEC received by the developer fund. In previous years, "founder rewards/developer funds" were widely seen as a source of continuous selling pressure. However, after multiple halvings, the marginal impact of this negative factor began to weaken. Combined with the historical low price of $15–20, this effectively pushed the supply and valuation to their limits. When sentiment and capital returned to this sector, the upward price elasticity was greatly amplified. Secondly, there's the "qualitative change" brought about by technological and product upgrades: a series of upgrades, such as removing trusted settings, improving the efficiency of privacy proofs, unifying the address model, and enhancing the experience of light wallets and mobile devices, have shifted the outside world's understanding of ZEC from a "veteran privacy coin" to a "candidate for privacy infrastructure that can be adopted by financial institutions and compliant products." The technological narrative is no longer confined to the white paper but has been practically implemented at the network and user experience layers. Thirdly, there's the linkage between narrative and funding structure. As the overall market capitalization of privacy coins rebounded to over $20 billion, multiple research institutions and media outlets labeled ZEC as the "leader in privacy recovery." Coupled with the disclosure of holdings by some institutional products, "institutional recognition" has become a new label. In the derivatives market, the trading volume of ZEC perpetual and options surged sharply when breaking through key price levels, triggering short squeezes multiple times and pushing prices up in a near-waterfall-like manner. Subsequently, funds rotated within the sector to assets such as XMR and DASH, forming a complete "privacy coin sector rally." Finally, macroeconomic and regulatory events provided strong narrative fuel for this round of market activity: several cases of large-scale BTC tracking and confiscation on transparent public chains have made the market intuitively realize that public ledgers have almost no "room for forgetting" in the face of strong regulation and strong analytical capabilities. This has both strengthened regulatory confidence and exacerbated some users' concerns about the complete stripping of their privacy. Against this backdrop, assets that can provide both strong privacy and selective disclosure capabilities are naturally seen as a tool to hedge against the risks of transparent chains and the excessive visibility of future CBDCs.

However, understanding the logic behind ZEC's surge does not mean ignoring its risks. The privacy sector as a whole is characterized by high volatility, high policy sensitivity, and high narrative dependence; the greater the price increase, the higher the sensitivity to regulatory and liquidity shocks. Therefore, compared to speculative trading with a single coin, a more reasonable perspective is to incorporate the privacy sector into a portfolio for structured allocation. It can be viewed as a functional sub-position within a digital asset portfolio: on the one hand, it hedges against the tail risk of "further compression of privacy" in the macro and regulatory environment; on the other hand, it shares in the long-term beta generated as zero-knowledge proofs and privacy infrastructure are gradually absorbed by traditional finance and Web3. In terms of specific allocation, investors can understand it using a three-layer structure of "core + satellite + options": with XMR and ZEC as the core layer leaders, one leaning towards extreme privacy and the other towards compliance-oriented imagination; privacy assets with payment orientation or practical adoption in specific regions as the satellite layer, focusing more on actual use cases and network effects; and emerging ZK/L2/privacy DeFi modules as the options layer, using small positions to aim for high returns from technological inflection points and narrative amplification. Regardless of the investment structure adopted, the prerequisite is a clear understanding of the high volatility and policy uncertainty of the sector. Through position control, stop-loss mechanisms, and regular rebalancing, both a long-term positive outlook on privacy and a respect for short-term risks should be incorporated into the investment framework. For investors willing to invest time in in-depth research and understanding the interplay between technology and regulation, the privacy coin sector, especially compliant privacy architectures represented by ZEC, may be one of the main themes that will run through the bull and bear markets of digital assets in the long term. However, it is more suitable to be rationally and systematically incorporated into portfolios, rather than impulsive bets driven by emotions and short-term gains.

III. Investment Prospects and Risks in the Privacy Coin Sector

The medium- to long-term prospects and risk structure of the privacy coin sector are rapidly being reshaped by increasing digitalization, changing regulatory environments, and the maturation of cryptographic infrastructure. Whether viewed from a macroeconomic perspective, technological roadmap, or institutional adoption path, the value logic of privacy assets is moving beyond the realm of "speculative niche coins" and evolving into a long-term issue spanning commerce, finance, sovereignty, and internet architecture. In a world where assets, identities, and data are increasingly on-chain, privacy is no longer optional but is gradually becoming a fundamental requirement. Therefore, the crypto-privacy infrastructure represented by privacy coins has the potential to become a structural pillar of growth over the next decade.

Looking at real-world changes, the awareness of privacy and data sovereignty among businesses, individuals, and nations is rising simultaneously. For businesses, trade secrets, cost structures, supply chain pricing, and credit terms are all highly sensitive data. If settlement and clearing processes are completely transparent, competitors can easily reverse-engineer cost structures and strategies using on-chain data, creating new asymmetric competition. For individuals, from social media and ticketing platforms to large internet companies, information leaks and data misuse have become commonplace. The public is increasingly aware that financial trajectories, asset sizes, and transaction habits are themselves highly valuable "hidden assets," and exposure means higher attack risks. With the promotion of infrastructure such as CBDCs, digital identities, and unified credit systems, discussions about data sovereignty between nations and citizens are becoming increasingly intense. All these trends are driving privacy from an "optional" to an "infrastructure-level requirement," and privacy coins and privacy protocols naturally stand at the intersection of this trend. At the same time, the maturity of cryptographic technologies such as zero-knowledge proofs, ring signatures, and multi-party computation is further accelerating the trend of privacy transforming from "a characteristic of a certain blockchain" to "a component of the Web3 full-stack infrastructure." For example, research on zero-knowledge proofs driven by projects such as ZEC, Aztec, and ZK Rollup has permeated many areas, including privacy payments, on-chain settlements, RWA data protection, ZK KYC, and ZK reputation management. Even if the price of a single privacy coin stops rising in the future, its underlying technology will still be adopted more widely in B2B and B2G scenarios through enterprise solutions, sidechains, and licensed networks. In other words, even if investors do not directly hold the privacy coin itself, the value of the privacy sector can still be realized through technological spillover.

Furthermore, driven by the global institutionalization of DeFi, the demand for privacy is evolving from "anonymous transactions" to "optional transparency." Institutions want to monitor systemic risks and overall on-chain leverage, but do not want their positions, strategies, and liquidity exposed to competitors; high-net-worth clients also want to utilize on-chain settlement and 24/7 liquidity, but do not want their asset size to be fully disclosed by on-chain scanning tools. With the emergence of products such as on-chain government bonds, money market funds, and institutional lending pools, a financial network that is "auditable but not completely transparent" is gradually taking shape. Privacy chains, privacy L2, and privacy modules therefore have the potential to be adopted by financial institutions as infrastructure. Future privacy will no longer be limited to niche narratives, but will be an "optional transparency layer" for institutions. In this sense, the privacy sector has a long-term growth pillar that transcends bull and bear cycles. However, the privacy coin sector is not without risks, the most critical of which stems from changes in the regulatory environment. In the past few years, privacy coins have been in a "gray area": they are essentially technical tools for providing privacy, not dedicated vehicles for illicit purposes, but regulators often link privacy enhancement tools with illicit fund flows. The EU's AMLR has explicitly included highly anonymous crypto assets as a key regulatory target, and some regions are discussing banning privacy coins from listing on local exchanges. Countries like the US are also considering more direct sanctions against mixers, anonymous wallets, or certain privacy protocols. Against this backdrop, "compliant privacy" is inherently a dynamic game: whether regulators will accept ZEC-style key viewing mechanisms, and whether financial institutions are willing to adopt a "selective disclosure" model, both require time to verify. If major jurisdictions implement more aggressive restrictions, the entire privacy sector could experience a sharp short-term valuation correction.

Technical risks are equally significant. Privacy protocols rely heavily on the correct implementation of cryptography. Any bugs in the underlying algorithm, risks in the zero-knowledge proof parameter generation process, incorrect settings of default wallet parameters, or even misuse of privacy switches by clients could weaken or even destroy anonymity. Furthermore, the attack surface of privacy protocols is more complex than that of typical public blockchains, and many users are unaware that "privacy protection is not absolute," increasing security uncertainties at both the usage and implementation levels. Therefore, the security of privacy assets should not be considered a given technological gift but requires continuous monitoring of project audits, upgrade schedules, and community transparency.

The privacy cryptocurrency sector also faces competitive pressure from both internal and external sources. With Ethereum and its L2 blockchains (such as zkSync and Stark series), Bitcoin sidechains, and high-performance public chains all incorporating zero-knowledge proof research, privacy capabilities are gradually "sinking" into mainstream public chains. This means that privacy may become a "general-purpose feature" in the future, rather than an exclusive selling point for "independent privacy coins." The final landscape may evolve into two categories: one is dedicated privacy coins like XMR and ZEC, serving as a pure choice for privacy enthusiasts; the other is privacy modules on mainstream chains, providing sufficient privacy protection for 90% of use cases. From a valuation perspective, this means that whether privacy coins can maintain a high market capitalization depends on factors such as the ecosystem, use cases, and institutional adoption, and cannot rely solely on "possessing privacy technology" as a competitive advantage.

Finally, liquidity and market structure remain the most realistic risks for privacy coins. Compared to BTC and ETH, privacy coins have a smaller overall market capitalization, higher concentration, and insufficient depth, making them more susceptible to price volatility when large funds enter or exit the market. Insufficient depth in the derivatives market may also amplify the effect of long and short squeezes; delisting measures or temporary risk control adjustments by some exchanges can also cause severe price shocks. In other words, even if the long-term logic of the privacy sector holds true, it is still not an asset class suitable for high leverage and heavy betting. In summary, the privacy sector has clear medium- to long-term growth pillars: certainty of privacy demand, the spillover effect of zero-knowledge technology, and the potential for deep integration with institutional finance; at the same time, it faces systemic risks in regulation, technological implementation, competitive environment, and market structure. The future of privacy coins should not be viewed with excessive optimism, nor should it be intimidated by short-term price behavior. The key is to understand its strategic value as the "privacy foundation layer of the future on-chain world" and to allocate resources in this sector using portfolio thinking, risk budgeting, and long-term monitoring. In an increasingly transparent on-chain era, privacy will become even scarcer and more important. This means that the investment value of privacy coins will ultimately depend on whether investors can examine them from an infrastructure perspective rather than a short-term volatility perspective.

IV. Conclusion

Privacy coins are not a short-term trend, but rather a structural necessity in the financial system against the backdrop of deepening digitalization, maturing regulatory technology, the advancement of CBDCs, and frequent data misuse. Privacy will inevitably move from a fringe issue to a public one, and its implementation may evolve between privacy coins like XMR and ZEC, ZK Rollups, privacy Level 2, and compliant privacy modules. However, the long-term trend of "expanding privacy infrastructure" is clear. ZEC's recent surge stems from supply contraction, long-term undervaluation, and technological upgrades such as Halo 2/NU5, but it is also influenced by the high leverage and amplified sentiment in the crypto market, making a linear price increase unlikely. The key is to observe whether ZEC continues to increase its shielded transaction ratio and actual usage during corrections, and whether it maintains its strategic position of "compliant privacy" amidst regulatory maneuvering. For investors, the privacy sector is more suitable as a functional sub-position in a portfolio to hedge against the risks of transparent public chains and CBDCs, while sharing the long-term beta of privacy technology adoption, rather than a single heavily weighted investment. The core should be leading assets, supplemented by small positions in innovative projects, while continuously tracking regulatory developments, progress, and on-chain data. This report aims to provide a cognitive framework rather than buy/sell signals. Over the next decade, the privacy sector will continue to experience multiple cycles of hype and suppression. What truly matters is maintaining judgment amidst the fluctuations and narratives, and examining the inherent value of "privacy" as infrastructure from a long-term perspective.