What is a Privacy Coin?

Although blockchain is often associated with transparency, where data is stored publicly on-chain and visible to everyone, we have reached a stage where this transparency-first model needs to be reconsidered. This is especially important in a world where human privacy is increasingly monitored and controlled. Not everything needs to be stored on-chain. For example, private messages should not be publicly accessible. Likewise, investment funds that test trading algorithms with tens of millions of dollars do not want their strategies or identities exposed and exploited. In this context, privacy-focused projects could help preserve personal and financial privacy in the digital age. They allow data to be neither controlled by third parties nor openly accessible to the public, while still maintaining decentralization and on-chain verifiability. This article will explain the privacy narrative in crypto and introduce several projects in the privacy crypto coins sector.

What is a privacy coin?

A privacy coin is a cryptocurrency or blockchain project designed to protect user privacy by hiding sensitive transaction data. On public blockchains such as Bitcoin or Ethereum, transactions are transparent by default. Anyone can view wallet addresses, transaction amounts, timestamps, and the movement of funds across the network. Privacy coins are designed to keep the network verifiable without exposing every detail of a user’s financial activity. To achieve this, they use cryptographic methods to conceal key information such as the sender, receiver, transaction amount, or even the type of asset being transferred. At the same time, the network can still verify that transactions are valid and that no one is creating fake money or double-spending funds.

Privacy in a decentralized world

Many people will remember the GameStop stock saga. Within a single week, a large number of amateur retail traders inflicted heavy losses on several hedge funds, causing billions of dollars in damage, by collectively buying shares of GameStop, a video game retailer. It began when a group of Reddit users discovered that several hedge funds were coordinating to short GameStop stock. Those who learned about it spread the information across the Reddit community, sparking a buying wave intended to drive the price upward. The result was a several-fold increase in GameStop’s share price and massive losses for the hedge funds involved.

This episode clearly illustrates how important privacy is, especially in a decentralized world built on blockchain technology. Not everything should operate in full public view. For example, messages do not need to be stored publicly on-chain. With the development of privacy-focused projects, messages can be stored anonymously on-chain without being controlled by any centralized server, unlike in the Web2 model.

Rather than being treated as an optional add-on, privacy should become a core layer of the Internet and of financial systems. This is especially critical in sectors such as finance and healthcare, where sensitive data must be tightly controlled regarding who can access it and under what conditions. Imagine, for example, a financial institution using machine learning to generate trading signals and execute trades based on those predictions. If transaction patterns or execution behavior become visible to the market, the institution may unintentionally reveal its positioning. Once others infer the model’s behavior, they can trade against it or front-run execution, quickly degrading performance and turning an effective strategy into a costly and potentially catastrophic loss. That’s why privacy is necessary.

Privacy coin projects and how they work

Monero

At the time of writing, Monero is the second-largest project in the privacy sector by market capitalization, with an FDV of over $7 billion. It is one of the earliest privacy blockchains, launched in 2014. Unlike Bitcoin, where all transaction information is public, Monero transactions are confidential and untraceable.

The price of the Monero token has performed well recently as interest in privacy projects has returned.

The sender, receiver, and amount of every transaction are hidden through the use of three key technologies: Stealth Addresses, Ring Signatures, and Ring Confidential Transactions (i.e. RingCT).

• Stealth Addresses: They allow and require the sender to create random one-time addresses for each transaction on behalf of the recipient. The recipient can publish a single address, while all incoming payments are sent to unique addresses on the blockchain, which cannot be linked back to the published address or to other transaction addresses.

• Ring Signatures: In cryptography, a ring signature is a type of digital signature that can be created by any member of a group of users who each possess a key. When a user sends a transaction, their real signature is mixed with decoy signatures, ensuring that no one can identify the true sender, while the network can still verify that the transaction is valid.

• RingCT: A technology that completely hides the transferred and received amounts while still allowing the blockchain network to verify that the total input and output values are correct.

ZCash

At the time of writing, Zcash is the largest project by market capitalization in the privacy coin sector. Zcash uses a Proof of Work consensus mechanism similar to Bitcoin, but differs in its ability to anonymize transaction data through zk-SNARK technology, a cryptographic proof that allows a transaction to be verified as valid without revealing the sender, the receiver, or the amount. Unlike Monero, where all transactions are private by default, Zcash allows users to choose whether transactions are public or private.

The number of transactions on Zcash increased significantly in the fourth quarter of 2025

While Bitcoin offers full transparency and Monero provides full anonymity, Zcash represents a combination of both. However, in the legal context, Zcash still faces disadvantages, as the European Union has planned to ban privacy-focused cryptocurrencies such as Monero and Zcash in 2027. Not being fully anonymous like Monero may give Zcash a better chance of achieving legal acceptance in the future.

Starknet

Starknet is a Layer 2 scaling solution for Ethereum that uses Zero-Knowledge proofs (specifically STARKs) to significantly improve throughput and reduce costs while inheriting Ethereum’s security. Instead of focusing primarily on scaling solutions as in 2021, Starknet is now focusing on privacy as execution capacity across the industry has improved dramatically while privacy at scale remains largely unresolved. At its core, Starknet leverages two key advantages of Zero Knowledge proofs to address both scalability and privacy:

• Concealment allows proving that something is true without revealing the underlying data.

• Compression makes it possible to summarize a massive execution into a short proof that anyone can verify at low cost.

Starknet is currently building a comprehensive privacy ecosystem with components across the entire stack, including core infrastructure, private payments, private trading, privacy pools & mixers, privacy neobank, and data-preserving protocol.

In addition, the Starknet team is also developing Ztarknet, a Starknet-based Layer 2 for Zcash that operates as an external computation layer described as the GPU of Zcash. Its goal is to enable the development of sophisticated applications such as user experience-rich DeFi protocols or full-stack applications while remaining aligned with Zcash’s privacy principles.

Zama

Zama is one of the new-generation blockchain projects in the privacy sector today. The project has raised nearly $140 million and is expected to launch its mainnet by the end of 2025. The Zama Confidential Blockchain Protocol enables confidential smart contracts on top of any L1 or L2 using Fully Homomorphic Encryption (FHE). FHE is an end-to-end encryption technology developed by multiple cryptographers, including Pascal Paillier, co-founder of Zama. FHE enables data processing without decryption, allowing companies to provide services without accessing user data while users experience unchanged functionality. With encryption maintained during both transit and processing, validators can process data without performing decryption, thereby enhancing user security and privacy.

Zama has also developed fhEVM, a specialized version of the Ethereum Virtual Machine that supports private smart contracts. It allows developers to build data-confidential applications in a straightforward way using the familiar Solidity programming language and can be integrated into any EVM-compatible chain. Zama does not aim to build a closed blockchain, but instead positions itself as an infrastructure layer that can be integrated across multiple blockchains. If privacy gradually becomes a default standard, especially in the context of AI where personal and financial data are increasingly intertwined with blockchain systems, Zama is likely to emerge as a privacy service layer attached to existing blockchains. This is one of the reasons why Zama has been able to raise a relatively large amount of funding.

Zano

Zano is an open-source cryptocurrency (layer-1) and ecosystem with enterprise-grade privacy, security, and scalability that operates as a foundation for confidential assets and decentralized applications (dApps). Andrey Sabelnikov, the lead developer of Zano, created the first-ever privacy coin protocol codebase, CryptoNote, which is used by Monero and hundreds of other projects.

Similar to Monero, Zano uses Stealth Addresses, Ring Signatures, and RingCT to maintain privacy. On Zano, everything is private by default, meaning people cannot see transaction amounts, the addresses involved, or the type of asset being transferred. This means that if one were to perform a 51% attack on Zano, one would need the majority of the hash rate and a significant share of the total staked coins, making the cost of an attack incredibly high and rendering it infeasible. In addition, Zano incorporates the world’s first Proof of Stake mechanism, Zarcanum, which enhances traditional Proof of Stake with untraceability and hidden amounts. One of Zano's unique features is the 'Confidential Layer Bridge', which allows users to bridge any asset to Zano. Consequently, a private "wrapped" version will be created, allowing the addition of a privacy layer to any asset. This bridge hides sender, receiver, and amount details, allowing public assets to gain high-level privacy, fast transfers, and low fees.

Conclusion

For more than a decade, blockchain has been discussed as a symbol of transparency. However, it may be time to reconsider and recognize the necessity of privacy. The demand for financial privacy continues to grow even as regulation tightens. Privacy coin transactions reached $250 billion in 2025, more than 70 exchanges have delisted privacy coins, and usage persists despite reduced access. In crypto, information has direct monetary value. Anyone can easily scan on-chain data to see what you hold, how much you hold, your entire transaction history, who you transact with, and when you do it. If your activity is public by default, you are effectively giving away high-signal financial metadata for free. Market participants are beginning to realize that they need privacy more than ever, as reflected in the recent surge in privacy coins. We should only make public what truly needs to be public, such as charitable donations. Even in an era when everything is being digitized and AI is developing rapidly, data does not have to be controlled by third parties; privacy can still be preserved, and information is made public only when necessary.