2026 Outlook (Part 4): The Privacy Track, Divergence, Consensus, and Value Redefinition
- Core View: Against the backdrop of global data sovereignty competition and tightening regulations, the privacy encryption track is undergoing a value reshuffle. Its core logic is shifting from "complete anonymity" to "selective anonymity and compliance" to adapt to mainstream applications and the demand for scaled capital.
- Key Elements:
- Significant Market Fragmentation: The total market cap of the privacy coin sector has reached $22.7 billion, with Monero (XMR) and Zcash (ZEC) collectively holding an 85% share. However, there are fundamental divergences between them in technical approaches (ring signatures vs. ZKP) and compliance acceptance.
- Governance Events Shake the Market: ZEC plunged 25% in a single week due to governance controversies within its core team, leading to approximately $100 million flowing into XMR, which subsequently hit a new all-time high of $700. This highlights the short-term market sentiment and capital rotation effect.
- Selective Anonymity Becomes the Mainstream Trend: Regulatory pressure (e.g., the EU's AMLR) is forcing exchanges to delist fully anonymous coins, while ZEC, with its design for selective disclosure, maintains better exchange support and institutional access (e.g., Grayscale Trust).
- Diversified Value Drivers: The sector's value is driven by multiple factors including legitimate privacy needs, regulatory arbitrage, and use in grey/black markets, rather than a single attribution. This explains the sector's overall 288% gain in 2025.
- Technical Paths Move Towards Coexistence and Convergence: ZKP technology is accelerating its penetration into enterprise-grade compliance scenarios, while ring signatures retain value in specific censorship-resistant scenarios. Furthermore, technical upgrades for both XMR and ZEC show a trend of convergence towards each other's characteristics.
- 2026 Outlook: Compliance Implementation is Key: In the second half of the year, as ZEC's governance issues clarify and technologies like ZKP/FHE find real-world application in financial, governmental, and other scenarios, the valuation of the privacy track will gradually anchor to the economic value created by addressing actual data sovereignty and compliance needs.
Against the backdrop of intensifying global data sovereignty competition and rapidly evolving regulatory frameworks, the privacy crypto sector is in a critical period of value redefinition. As of January 14, 2026, the total market capitalization of the privacy coin segment reached $22.7 billion, with Monero (XMR) and Zcash (ZEC) collectively accounting for 85% of the market share.
The market exhibits significant divergence around the core issue of privacy: Should privacy be completely untraceable, or allow for selective disclosure? Should the technical path adhere to cryptographic purity, or adapt to compliance needs? What demand drives the sector's value? ZEC plummeted 25% in a single week to a low of $360 on January 7 due to governance controversy, triggering an outflow of approximately $100M towards XMR. The latter hit a new all-time high of $700 on January 14 (a weekly gain of 52.59%), becoming the direct beneficiary of the governance crisis.
Looking beyond short-term volatility, four irreversible consensuses are forming: Selective anonymity is becoming the mainstream standard, privacy demand is a multi-faceted driver, compliance is the path to scale, and technological symbiosis adapts to diverse scenarios.
2026 Outlook: In the first half of the year, the sector will digest short-term sentiment shocks such as the ZEC governance turmoil, with fully anonymous coins facing sustained regulatory pressure. In the second half, as ZEC's governance structure clarifies and ZKP accelerates its adoption in financial compliance scenarios, verifiable privacy will serve as a native Web3 technological moat, becoming a standard feature of the digital economy. The value of the privacy sector will be fundamentally re-anchored to the rigid demand driven by geopolitics and the practical efficacy of compliant implementation.
1. Introduction: Re-evaluating Privacy Value Amid Geopolitical Fission
We are experiencing a digital territory restructuring dominated by geopolitics. Data, as the strategic resource of the new era, has become the core subject of competition and gamesmanship among nations. The EU's GDPR, China's data export management measures, and the long-arm jurisdiction under the US CLOUD Act collectively outline an increasingly fragmented and adversarial global data governance landscape. In 2025, the average loss from global data breaches reached $4.4 million, with the US figure as high as $10.22 million (up 9% year-on-year). Malicious attacks accounted for 51%, and the healthcare industry suffered the highest losses, reaching $7.42 million.
In this context, mere encrypted assets are insufficient to meet the challenge. Privacy-enhancing technologies that can safeguard data sovereignty and enable secure cross-border data flow are leaping from a niche segment of cryptocurrency to become critical infrastructure supporting national security and commercial competitiveness in the digital age. In 2025, the privacy coin sector overall surged 288%, with ZEC gaining 782% and XMR gaining 123% for the full year, outperforming the broader market during an overall crypto market correction.
This chapter will delve into the profound internal divisions within the privacy sector regarding its definition, path, and source of value under this macro trend, and argue how these divisions collectively point towards a unified and irreversible future: The value of privacy technology is being redefined by geopolitics and compliance demands.
2. Three Core Issues of Market Divergence
The divergence in the privacy sector is not merely a debate over technical routes but a deep-seated contest around the essence of value, implementation paths, and survival logic. These divergences are fully reflected in the market performance of the two benchmark projects, Monero ($XMR) and Zcash ($ZEC).
2.1 The Essence of Privacy: Complete Untraceability vs. Selective Disclosure
Core Controversy: Must privacy protection be built on complete anonymity? Or should it allow users to make verifiable disclosures when necessary?
Monero represents the technological philosophy of complete anonymity. Through a triple mechanism of ring signatures, stealth addresses, and confidential transactions, $XMR achieves complete hiding of the transaction sender, receiver, and amount. All transactions are private and untraceable by default.
Zcash adopts a design of selective anonymity. Through zk-SNARKs technology, it allows users to choose between transparent or shielded transactions and enables selective disclosure via a viewing key mechanism. Users can prove transaction information to trusted parties (such as auditors or law enforcement) without public exposure.
The Duality of Market Feedback
On one hand, complete anonymity meets the rigid demand for censorship resistance. In Q1 2025, approximately 11.4% of global cryptocurrency transactions involved privacy coins, and 29% of crypto users in the Asia-Pacific region regularly used privacy coins. Geopolitical instability and increased surveillance have driven this trend.
On the other hand, selective anonymity has gained broader compliance acceptance. 97 countries globally have implemented strict compliance frameworks targeting privacy coins. The EU AMLR will formally prohibit exchanges from handling anonymous wallets and privacy coins starting July 1, 2027. The Dubai Financial Services Authority banned privacy coin trading in the DIFC on January 12. In this context, ZEC has 17 trading pairs across 7 major exchanges, while XMR is supported by only 5 exchanges, all offering perpetual contracts with no spot trading pairs. Grayscale's Zcash Trust, with assets under management of $151.6 million, provides a compliant channel for institutional capital into the privacy sector. Although ZEC's shielded pool accounts for only 30% of transactions, its growth rate is 167%, indicating that user demand for privacy protection continues to grow even when given a choice. This optional design itself is becoming a key bridge connecting the crypto world with the traditional financial system.
2.2 Technical Path: The Purity of Ring Signatures vs. The Auditability of Zero-Knowledge Proofs
Core Controversy: Should privacy technology pursue cryptographic purity, or balance strong privacy with auditability?
Monero's ring signature technology obfuscates at least 10 decoy outputs, drowning the real sender in noise for each transaction, significantly increasing the difficulty for law enforcement tracking. This design achieves complete anonymity through mathematical and network-level obfuscation, requiring no trust in any third party. Ring signatures are computationally efficient, allowing XMR to maintain stable block production with dynamically adjusted and relatively low transaction fees. Technically, XMR is advancing the FCMP++ upgrade. A community-funded optimization competition has already improved the efficiency of its proof generation library by 95%, and plans include adding selective transparency features.
Zcash's zk-SNARKs technology takes a different path. Zero-Knowledge Proofs (ZKPs) allow proving a statement is true without revealing any information beyond the statement itself. To explain it simply: You need to prove the house is yours. You don't need to take someone inside; you just need to show them something only that house possesses. This perfectly fits the business and regulatory need for "data availability without visibility." ZEC users can prove they have sufficient funds for a transaction or are not involved in money laundering without exposing their transaction history or total assets. However, ZKP proof generation takes longer and is computationally more expensive than ring signatures, which somewhat limits the adoption rate of fully shielded transactions. The ZEC mainnet has completed the NU6.1 upgrade, with its roadmap including the Tachyon scaling solution to improve scalability.
Divergence in Market Performance
Technical purity has come at the cost of regulatory resistance. XMR was delisted from Binance spot trading in February 2024, and 73 major exchanges have delisted at least one fully anonymous privacy coin. This directly severs liquidity from mainstream fiat on-ramps, limiting its value capture ability and capital fluidity.
In contrast, auditability has opened the door to enterprise-level applications. The global ZKP market size, estimated at $1.28 billion in 2024, is projected to grow at a CAGR of 22.1% to $7.59 billion by 2033. Application scenarios have expanded to include financial anti-fraud, private stablecoin payments, healthcare data sharing compliant with HIPAA/GDPR, anonymous voting and identity verification in government systems, and more.
Notably, XMR's FCMP++ upgrade plans to add an outgoing viewing key feature, essentially moving towards selective disclosure. Meanwhile, ZEC's Tachyon scaling solution aims to reduce ZKP computational costs and improve the performance of fully shielded transactions. This convergence of technical paths suggests a possible future trend of integration.
2.3 Value Driver: Privacy Premium & Regulatory Arbitrage vs. Compliant Scaling Path
Core Controversy: What demand truly drives the value of the privacy sector? Is it legitimate privacy protection needs, regulatory arbitrage, or even illicit use? Can the market continue to expand under regulatory pressure?
Cryptocurrency fundraising during the Russia-Ukraine war, data compliance challenges in cross-border trade, competition in national digital infrastructure, and the awakening of data sovereignty awareness among individuals and institutions. These factors collectively constitute the long-term, rigid demand for privacy protection: Privacy protection has evolved from a personal preference to a strategic necessity for nations, enterprises, and individuals. Among these, Monero, due to its fully anonymous nature, represents the ultimate expression of privacy demand. However, this demand itself is multifaceted and complex, being heavily used for darknet transactions, as a money laundering tool for illicit activities, or for regulatory arbitrage.
Consequently, it inevitably faces crackdowns from global regulatory compliance: 97 countries have established strict compliance frameworks for privacy coins. The EU AMLR will ban exchanges and custodians from handling anonymous wallets and privacy coins from July 1, 2027. The MiCA and AML package require CASPs to implement KYC, the Travel Rule, and crack down on mixers. The Dubai Financial Services Authority banned privacy coins in the DIFC. The wave of large-scale exchange delistings has directly severed the liquidity of fully anonymous coins from mainstream fiat.
Market Pricing Amid Tug-of-War
ZEC, with its selective anonymity design, maintains relatively good compliance support. The Grayscale Trust provides a compliant entry point for institutional capital. However, the governance turmoil on January 7, triggered by the collective resignation of the ECC core development team due to disagreements with the Bootstrap board over the commercialization of the Zashi wallet, sparked fears of a project fork, causing the price to plummet 25% in a week to a low of $360. Although the original team formed CashZ, promising continued development without issuing a new token, and the mainnet operates normally, GitHub activity dropped to its lowest level since November 2021, and social media sentiment crashed by 90%, indicating clear short-term downward pressure. XMR's recent strong performance is also a direct result of capital outflow and sector-internal safe-haven rotation triggered by the ZEC governance crisis. Its long-term price support still stems from the structural demand for a privacy premium.
The essence of this contest lies in whether the privacy premium and regulatory arbitrage can offset the liquidity contraction caused by global regulation; and whether the technical characteristics of complete anonymity can find a space to survive within the wave of compliance. Judging from current market performance, XMR will rely on its technical resilience to find survival space in DEXs and underground markets, but it perpetually faces the long-term threat of liquidity drying up. ZEC, despite governance turmoil, retains greater potential for future integration with TradFi due to the compliance-friendly nature of its selective anonymity technology.
2.4 ZEC Governance Controversy: The Boundary Between Short-Term Shock and Long-Term Impact
The ZEC governance turmoil on January 7, 2026, provides an excellent case study for understanding the commercialization challenges in the privacy sector.
The entire engineering team of the Electric Coin Company (ECC) collectively resigned due to disagreements with the non-profit Bootstrap board over the commercialization of the Zashi wallet. The team accused board members of deviating from Zcash's original privacy mission and changing employment terms, making effective work impossible, ultimately leading to "constructive dismissal," including CEO Josh Swihart. The core conflict was that the ECC team wanted to accelerate product deployment and user growth by commercializing the Zashi wallet, while the Bootstrap board insisted on a non-profit structure to maintain decentralized governance. This directly caused the price of $ZEC to crash from $503 on January 7 to a low of $360 on January 10, a weekly drop of 25% and a maximum single-day decline exceeding 15%.
However, a deeper look reveals that the disagreement was limited to the commercial operation structure of the Zashi wallet and did not involve the development and iteration of the Zcash mainnet protocol layer at all. The Zcash Foundation explicitly stated that the network remains decentralized and operational, with block production and transaction settlement functioning normally, and no single organization controls Zcash. The original ECC team formed CashZ, adopting a startup structure to accelerate innovation and commercialization, pledging to continue Zcash ecosystem development without issuing a new token, with the goal of expanding Zcash to billions of users. On-chain data shows that the shielded pool size, representing user demand for selective anonymity features, continued its growth trend during the controversy (increasing from 23% to 28-30%), also indicating that the core value proposition remained unaffected.
From a long-term perspective, this turmoil should be viewed more as a growing pain in the project's commercialization process, rather than a failure at the technical or model level. If governance issues are resolved and capital flows become clear, the narrative of ZEC as "BTC insurance" still holds.
3. Unified Consensus Amid Divergence: Four Irreversible Trends
Although the market fiercely debates the definition, technical path, and source of value for privacy, a deep analysis of the underlying logic of all sides reveals that four irreversible consensuses are forming, collectively reshaping the value foundation of the privacy sector.
3.1 Consensus One: Selective Anonymity Becomes the Core and Industry Standard for Privacy
Whether judged by regulatory tolerance or the feasibility of commercial applications, the narrative of complete anonymity is giving way to controllable anonymity.
First, there is unified regulatory compliance. Major global jurisdictions' data regulations do not support complete anonymity but leave room for controlled disclosure. The EU's GDPR requires data minimization, while MiCA requires KYC/AML verification. These seem contradictory, but ZKPs provide a solution through "proving facts without exposing data." China's "Personal Information Outbound Certification Measures" allow cross-border data flow under the principle of "data availability without visibility." The US GENIUS Act and the pending CLARITY Act both enhance regulatory monitoring, indirectly driving demand for compliant privacy.
Market choices also send a clear signal. ZEC still holds 30% of the privacy coin market share even after the governance turmoil, and its selective anonymity design is key to maintaining its mainstream status. The comparative data is stark:
- Exchange Support: ZEC has 17 trading pairs across 7 exchanges; XMR is supported by only 5 exchanges, all offering perpetual contracts.
- Institutional Capital Channels: Grayscale Zcash Trust AUM is $151.6 million (up 228% in 2025), providing a compliant entry for institutions; XMR has no similar product.
- User Adoption Trend: ZEC's shielded pool grew from 11% to 30%, with shielded transactions accounting for 70% of total volume. In contrast, XMR suffered a 51% attack in September 2025.
The fundamental shift is that value is moving from concealment to control: "Verifiable when disclosure is needed, hidden when protection is needed" has become the greatest common denominator for balancing innovation and regulation, and connecting the crypto world with the traditional world. This shift grants structural advantages to auditable privacy technologies like ZKPs.
3.2 Consensus Two: Privacy Demand is a Multi-faceted Driver; The Auxiliary Channel Role in Capital Rotation Emerges
Privacy protection demand is multi-layered and persistent, encompassing legitimate privacy rights claims, regulatory arbitrage motives, and the objectively existing use by illicit activities. That is: The value of the privacy sector comes from this combination of diverse demands, not from a single attribution.
The multi-faceted structure of this demand primarily stems from the following points:
- Legitimate Privacy Needs: Personal financial privacy protection, corporate cross-border payments, financial anti-fraud, healthcare data sharing, etc.
- Regulatory Arbitrage Needs: Tax planning, cross-border wealth allocation, circumventing capital controls, DeFi, etc.
- Illicit Activity Needs: Darknet transactions, money laundering, ransomware, etc.
- Others: Scarcity-driven speculation, HODLing by technology believers, etc.
Additionally, a noteworthy phenomenon is that in this market cycle, privacy coins are playing a channel role for capital entering and exiting the crypto market in specific scenarios. Against the backdrop of strengthened capital controls and heightened KYC requirements, some capital chooses privacy coins as an anonymizing transit station for on-ramping—funds first enter a ZEC shielded pool for anonymization before exiting to transparent addresses or cross-chain bridges to prevent address tracing. Currently, this primarily serves regulatory arbitrage and illicit activity on/off-ramp needs, not the overall market's demand. Mainstream on/off-ramp channels still rely on BTC/ETH spot ETFs, direct stablecoin swaps, and compliant exchange fiat channels.
Market performance also confirms this. The privacy coin sector's overall 288% gain in 2025 cannot be explained solely by illicit activity demand, nor can it be attributed purely to geopolitical hedging or regulatory arbitrage. A more reasonable explanation is the resonance of multi-faceted privacy demands.
In 2026, privacy will become a key narrative, but the core logic has shifted from "resisting state surveillance" to the commercialization and compliance of data autonomy. Simplistically dividing privacy demand into "righteous geopolitical hedging" or "evil criminal tools" fails to
