Institutions Are Embracing Privacy Coins – But Is It Sustainable?

While the broader cryptocurrency market faces challenges, privacy coins are experiencing an unexpected surge in interest.

Key Takeaways

Surge in Privacy Coins: Privacy coins such as Zcash, Litecoin, and Monero have gained traction even amid a declining market.
Growing Institutional Adoption: Institutions are increasingly using privacy coins to meet specific transaction needs and ensure compliance.
Importance of Privacy Features: Features like Zcash's shielded transactions provide users with customizable privacy options while maintaining regulatory compliance.
Regulatory Challenges: Navigating regulatory frameworks poses a significant hurdle for institutions adopting privacy coins.
Technical Considerations: Advanced cryptography and transaction efficiency remain critical factors in the usability and acceptance of privacy coins.

According to Grayscale Research's October 2025 report, privacy coins like Zcash (ZEC) have shown significant growth even as the overall market declines. Key figures indicate that ZEC gained 248% in October, reaching a market cap of approximately $6.5 billion. Experts believe this rise in popularity stems from the increasing demand for privacy solutions among enterprises and financial institutions, aimed at enhancing confidentiality in transactions.

The Growth of Privacy Coins

Despite some surprises regarding the popularity of privacy coins, industry experts believe an increase was inevitable. Howard Wu, CEO of Provable and creator of Aleo—an ecosystem utilizing privacy solutions—emphasized that privacy needs have come to the forefront due to the focus on creating practical financial infrastructures.

Wu remarked, “The requirements of businesses and institutions differ greatly from those of early crypto enthusiasts.” As the enterprise blockchain sector anticipates reaching a value of $287 billion by 2032, institutions are increasingly integrating privacy coins for solutions providing confidentiality. Zcash, for example, functions as a decentralized digital currency similar to Bitcoin but incorporates optional privacy features through shielded transactions that conceal user identities and transaction amounts.

Grayscale’s findings indicate a growing demand for these privacy features, noting that the proportion of ZEC supply held in shielded addresses has increased from roughly 10% in 2024 to about 30%.

Institutional Use Cases for Privacy Coins

While individual traders are typically the main users of Zcash, institutions are beginning to recognize its potential for various applications. Carter Feldman, founder of Psy Protocol—a Layer-1 blockchain emphasizing privacy—shared that institutions mainly utilize Zcash for two purposes.

“Firstly, they leverage Zcash’s shielded pools for confidential transfers while still being able to disclose information when needed for audits or compliance,” he explained. Moreover, Feldman mentioned that investment products such as the Grayscale Zcash Trust are experiencing steady growth, highlighting that institutions are diversifying their portfolios to incorporate privacy-enhancing assets.

The Significance of Privacy in Transactions

Charlie Lee, the creator of Litecoin, elaborated that privacy remains essential for businesses engaging in transactions with LTC. “Though I don’t classify LTC as a privacy coin, offering privacy features remains a crucial aspect of its payment system,” he stated.

Will Wendt, head of the ecosystem at Oasis Protocol, shared that enterprises focusing on privacy coins are more interested in the outcomes rather than just the tokens themselves. “Projects creating technology that preserves privacy across chains are capturing the attention of institutions,” he noted.

Additionally, institutions are experimenting with zero-knowledge proof (ZKP) architectures to enhance private settlement layers and confidential reporting systems. Gracy Chen, CEO of Bitget, explained that newer Web3 networks are integrating similar privacy principles, enabling selective data disclosure when necessary.

Differentiating Privacy from Anonymity

The terms privacy and anonymity are often used interchangeably in the crypto world, but they are significantly different. Tom D’Eletto, head of product at Arculus, clarified that while tokens like ZCash and Monero provide anonymity, other solutions like Aleo and Midnight offer privacy features that limit public visibility of transactions.

This distinction is vital, especially for institutions that must maintain compliance with regulations. “Authorities need to access certain information as required,” D’Eletto pointed out.

Navigating Regulatory and Technical Obstacles

Despite the growing interest, regulatory challenges are significant hurdles for institutions engaging with privacy coins. Lee mentioned that regulatory crackdowns have affected how privacy coins are used, particularly citing the delisting of Litecoin in certain regions after launching its privacy layer.

In the U.S., proposed regulations may require exchanges to record and report private transactions over $500 involving unhosted wallets. Moreover, sanctions against tools like Tornado Cash link them to money laundering and terrorism, raising further concerns about the use of privacy coins.

Eric Jardine, from Chainalysis, noted that the challenge lies in balancing user privacy with lawful oversight. “Ensuring that privacy features comply with regulations while still being able to investigate suspicious activities is crucial for building trust,” he explained.

Technical challenges also persist; implementing advanced cryptography for privacy coins creates complexities. Lee indicated that establishing a transparent, fixed supply of tokens often seen with Bitcoin is complicated when dealing with privacy coins, which may face risks of hidden inflation due to potential quantum attacks.

The Future of On-Chain Privacy

Regardless of the challenges, the demand for on-chain privacy solutions is evident and continues to grow. “This trend is evident not only at the base layer but also with the rise of next-gen blockchains designed for privacy-preserving smart contracts,” Feldman remarked.

As privacy coins like Zcash become more prominent in this current market phase, it may reveal a growing trend. “There’s always a pursuit of the next big thing, and privacy becomes more appealing as more people discover privacy coins,” Lee concluded.