The “Exit Liquidity” Spark
The ridiculous price action of Zcash (ZEC), which surged over 444% in October, has done more than just create “exit liquidity” for savvy traders. It has violently reignited a debate that has long haunted crypto: the role of privacy in a transparent-by-default world.
While prominent voices warn that new buyers are playing a dangerous game in a liquidity-tight market, this surge isn’t just a simple pump. It’s a market signal, and it coincides with a fundamental technological shift. The development of privacy technology is back, and this time, it looks different.
The Privacy Paradox: Why It Failed the First Time
Privacy is not new. Veterans will remember Monero, which has been around since 2014. But for most of crypto’s history, the industry has been in a paradoxical battle with itself.
To gain legitimacy, blockchain needed transparency. Real builders had to distance themselves from hackers, money launderers, and other bad actors. In this environment, privacy features quickly became perceived as tools for dishonest players. Projects like Tornado Cash, while gaining traction from users who value privacy, put those same users in the position of commingling funds with illicit actors, unable to prove their own innocence.
The result was a regulatory crackdown. Exchanges, in their pursuit of operating licenses, froze funds from cash mixers and delisted questionable privacy tokens. Ventures and institutional funds, wary of compliance officers, refused to hold them. Privacy became the industry’s “criminal” feature.
Why This Time Is Different: From “Criminal” to “Compliant”
This regulatory retreat doesn’t mean privacy isn’t vital. Ask yourself a simple question: “Do you want your coffee purchase today to expose your entire 10-year investment history?”
The majority of people would say no, yet the current blockchain setup does exactly this. As crypto legislation advances and more institutions are onboard, these new, big players are revisiting that question, and they demand a solution.
The answer is auditable privacy. This is the Zcash model: optional ZK-shielded transactions that are private by default but have the built-in ability to be decrypted with a “viewing key” for audit and compliance purposes.
This crucial distinction is supercharged by the fact that technology is finally ready: ZK-Proofs used to be slow and expensive. Today, a “proliferation” of developer tools (zkDSLs) like Cairo and back-ends like Halo2 have made ZK accessible. The trend of building zkVMs (Zero-Knowledge Virtual Machines) on standard instruction sets like RISC-V is making the technology scalable and composable.
This is the moment privacy transforms from a “Nice-to-Have” to a “Must-Have.” We no longer need to compromise between privacy and compliance or rely on centralized exchanges as the only “private” clearing houses.
A Maturing Privacy Stack: The Technology (PETs)
The current privacy renaissance is being driven by a full toolkit of Privacy-Enhancing Technologies (PETs).
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ZK-Proofs (The Star of the Show): A Zero-Knowledge Proof (ZKP) is a method of proving the validity of a statement without revealing anything other than its validity. It involves a “prover” and a “verifier,” giving users the ability to publicly share proof of knowledge or ownership without revealing the details.This tech is advancing on many parallel paths: some focus on zkEVMs for ZK-rollups (scaling), others on general-purpose zkVMs (RISC Zero, Succinct), some on hardware, and others on entirely new proof systems like Polygon’s Plonky3, which uses sum-check to achieve high performance without a trusted setup.
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The Broader Toolkit (TEE, MPC, FHE): ZK doesn’t stand alone. Developers now have a full toolkit to tackle different privacy needs:
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TEE (Trusted Execution Environment): A hardware-based solution. It’s a secure “black box” inside a processor that isolates data while it’s being used.
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MPC (Multi-Party Computation): A cryptographic protocol, involving multiple parties jointly compute data by splitting it into “secret shares.” No single person ever sees the full data.
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FHE (Fully Homomorphic Encryption): An encryption scheme where computations can be made directly on encrypted data without ever decrypting it.
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The Rabbit Hole: Trade-Offs & Challenges
This new toolkit is powerful, but this jumps into another rabbit hole: there is no “magic bullet.” Each technology has significant trade-offs.
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FHE is the most hyped. Zama, the leading open-source solution, has enabled an “fhEVM” (Fully Homomorphic EVM) used by Fhenix and Inco Network to build confidential smart contracts. Mind Network is focusing on FHE for secure data and AI. But FHE is incredibly slow, 1,000x to 1,000,000x slower than traditional computing. Complex calculations can also accumulate “noise” that corrupts the data. The current solution is to hybridize FHE with TEEs or ZK (as Horizen and Chainlink are exploring) or to design specialized hardware like Zama’s “HPU” (Homomorphic Processing Unit).
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MPC offers moderate performance, but the “multi-party” framework is constrained by latency. Each party must constantly “talk” to the others to perform a computation, a problem that grows bigger with more participants.
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TEEs are the most mature solution today, offering fast, efficient computation within a hardware enclave. However, their trust model is in the hardware, which is not perfect. Recent hacks via fault injection and side-channel attacks (where hackers get physical hardware access) have proven that TEEs can be vulnerable.
The New Privacy Battleground: Who Will Win?
With these tools, ZK is breaking out of its “scaling-only” box. It’s now being used for shielded transactions, private smart contracts, web2 infrastructure connections, identity proofs, confidential AI, and trustless bridges.
This raises the central question: What is the final form of blockchain privacy? Is Zcash, the incumbent, the final form? The views are split. Some argue Zcash has a strong moat with proven technology tested by time. Others argue its features can be easily replicated in more programmable environments, avoiding migration.
This opens a new battleground with several key players:
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The Incumbent: Zcash & Its L2s. This camp is watching Ztarknet, a programmable Layer-2 on Zcash. It aims to utilize the security of Zcash’s PoW UTXO model while increasing shielded transactions to boost network-wide anonymity, shielded transactions increased from 14% in July to around 26% at the end of October.
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The Integrated Platforms. This group bakes ZK services directly into their chains. Developers can write in custom languages like Cairo on Starknet, Leo on Aleo, or o1js (TypeScript) on Mina. Or, they can leverage the post-Atlas ZKsync, which now uses the native Airbender prover to run familiar languages like Rust or C++ compiled to RISC-V, generating ZK proofs for their application’s use case.
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The “Picks & Shovels” (PaaS & Hardware). This model unbundles the stack. Developers can use ZK-provers-as-a-service like RISC Zero’s Boundless or Succinct’s SP1 to generate fast, cost-efficient ZK proofs for any blockchain. We already see this in action: Malda uses Boundless for its Unified Liquidity Lending model, and Hibachi uses Succinct’s SP1 to prove its private CLOB. This layer also includes hardware providers like Cysic (building ZKP-optimized ASICs) and specialized tools like ZK data coprocessors and Chainlink’s Confidential Runtime (CRE).
Conclusion: Beyond the Hype, a Race for Adoption
Ultimately, the winner of the blockchain privacy race, whether it’s the incumbent L1, the integrated platform, or the modular PaaS provider, will be determined not by the elegance of its technology alone, but by its ability to attract a critical mass of users and developers. As you noted, without real adoption, even the most advanced cryptography remains “just on paper.”
