A response to Vitalik’s “Why I Support Privacy”, one year on.
Last year, Vitalik published “Why I Support Privacy”. A brilliant philosophical piece hiding behind the humblest headline.
I think it’s one of the most important pieces written about crypto infrastructure in years, and not for any of the usual reasons. It didn’t introduce a new technology or propose a framework. It just said something the industry had been failing to say clearly for years:
Privacy is not a niche cypherpunk obsession. It is a normal requirement for any functioning society.
It was not hard to agree with, although it was so counterintuitive to everything the blockchain narrative was built around- extreme transparency as a core value. And it articulated why later technologies like Zero-Knowledge (ZK) Proof and Fully Homomorphic Encryption (FHE) provide a sensible and philosophically coherent extension to public blockchains.
The philosophical case is, at this point, settled. What the industry still underestimates is the second-order question: building privacy into a system architected around the opposite assumption is not a feature you add later. It is the infrastructure balancing act of the next decade.
Public blockchains are radically transparent by design. Every transaction, every wallet, every interaction sits on a permanent ledger that anyone with a block explorer can read. That was never an accident. It was foundational. “Don’t trust, verify” only works if the system is open enough for anyone to audit it independently, and for years the industry treated this transparency as an unquestioned virtue.
But real economies do not function in full public view.
As crypto drifts from speculative experimentation toward something that wants to call itself financial infrastructure, that contradiction is becoming fundamental.
And the interesting question is no longer whether privacy matters. It’s how crypto gets there without throwing away the properties that made public blockchains useful in the first place.
Transparency Sounds Better in Theory Than in Practice
Radical transparency works well in early-stage ecosystems built around speculation and ideology.
It works far less well once actual businesses, institutions, employees, counterparties, and governments enter the picture.
No serious company can operate if its treasury is publicly exposed in real time. Institutions don’t want competitors tracking positions, counterparties, or cash management strategies onchain. Employees shouldn’t be able to inspect coworkers’ compensation packages through wallet activity.
And once your wallet becomes associated with your identity, it is not just your “crypto activity” that becomes visible. Every payment, transfer, interaction, investment, donation, subscription, or purchase effectively becomes public information, and lives onchain forever.
Radical transparency sounds elegant in theory. In practice, it breaks a lot of normal economic behavior.
The irony is that crypto spent years trying to replace trusted intermediaries, only to discover that one of the key roles those intermediaries quietly provide is confidentiality.
One of the flaws of traditional finance is opacity, which crypto came in to counter. But complete transparency creates its own problems.
That is the practical reason, in addition to Vitalik’s philosophical ones, that the future of the onchain economy is selective transparency, not radical transparency.
The First Privacy Wave Was Idealistic, Not Useful
Crypto has been here before. Privacy coins, mixers, obfuscation tools, Tornado Cash. Technically impressive, very crypto-native in philosophy, and in retrospect aimed at the wrong target. First-generation privacy tools optimized for anonymity, not for usable financial infrastructure, and that distinction has turned out to matter.
Mixers solved privacy in an absolute way, and in doing so made accountability, supervision, and compliance extraordinarily difficult. That is exactly why they drew the regulatory response they did. Tornado Cash did not become controversial because regulators suddenly discovered that privacy exists. It became controversial because the architecture made it nearly impossible to tell a legitimate user from a sanctions evader.
I think the enforcement went too far trying to justify the warranted result, and the precedent it set has real costs. But you don’t have to defend the response to notice what the market took from it: absolute opacity is not going to be the foundation of mainstream financial infrastructure. Not because privacy is illegitimate, but because economies need confidentiality and accountability to coexist, and tools that make one impossible cannot deliver the other. That probably disappoints the part of the industry that treated transparency or anonymity as ideological absolutes. Financial infrastructure tends to evolve toward balance rather than purity.
The obvious counter is that permissioned or private chains already solve this. They do, in very narrow enterprise contexts, have a valid role. But fully closed systems lose what makes blockchains a financial gamechanger: shared liquidity, composability, interoperability, neutral infrastructure.
Recreating private databases onchain is not very interesting, and is not built to be the infrastructure for the future economy.
The harder and more interesting challenge is preserving the advantages of public infrastructure while introducing enough privacy for real economic activity to function on top of it.
The next generation is about selective privacy
Projects like Midnight, Railgun, Zama, Aztec, Soda Labs and others are moving the conversation away from “hide everything” and toward something more interesting: programmable privacy.
The real innovation isn’t anonymity. It’s selective disclosure. The ability to protect balances and activity from public view by default; to prove compliance without exposing the underlying data (proof of solvency, proof of source of funds, proof of accredited status); to disclose to specific counterparties or regulators on demand, and to keep commercial confidentiality intact without fully breaking auditability.
Striking that balance is hard technically (ZK proofs are still expensive at scale), hard legally (most regulatory frameworks were not written with cryptographic disclosure in mind), and hard from a product standpoint (no one wants to think about viewing keys). But it is one of the most important infrastructure problems left in the space.
The next wave of adoption is not going to come from retail hyping on memecoins. It is going to come from payroll systems, tokenized funds, onchain credit, consumer payments, and treasury operations, all of which assume privacy as a baseline rather than a bolt-on. Secrecy and privacy get conflated constantly in this industry; they are not the same thing. A bank proving compliance to a regulator while keeping client exposure confidential from the public is not contradicting itself. That is just how serious financial systems work.
Compliance is not the enemy of privacy
This is where parts of the industry still get stuck. Compliance gets framed as a betrayal of the original vision, and at this point that framing is more dogma than analysis. Real-world systems run on selective disclosure all the time. Banks do not publish customer balances. Public companies disclose some information and protect other information. Lawyers, doctors, payroll providers, and clearing houses all operate inside frameworks that combine confidentiality with oversight. Crypto is slowly arriving at the same place.
The projects that matter in this layer will not be the ones maximizing opacity or maximizing transparency. They will be the ones building systems where users, institutions, and regulators each get enough of what they need without breaking what the others need. That takes infrastructure thinking more than ideological positioning, and infrastructure thinking has never been the industry’s strong suit.
Where the value lands
Prediction markets, RWAs, stablecoins, tokenized funds, onchain credit, embedded DeFi: every category that takes itself seriously eventually collides with the same problem. Public transparency does not scale cleanly into real economic activity. The projects that solve it well will not just ship “privacy products.” They will define the layer the next phase of crypto sits on top of.
Unlike a lot of the narratives in our industry, this one does not feel speculative. The demand is already there. Institutions are not “experimenting” anymore- major banks have settled stablecoin transactions onchain, asset managers are tokenizing money market funds, and corporate treasuries are beginning to hold digital assets directly. The false choice between full transparency and black-box opacity is dissolving. The teams that build the credible middle will be remembered as the ones who took crypto from interesting to useful.
Vitalik was right that privacy is a normal requirement for any functioning society. I’d add that it’s also a prerequisite for that “economy of the future” we’ve been talking about for a decade.
The remaining challenge is to find the right balance between privacy, compliance, and usability, and then to embrace it against the industry’s older instincts. That second part seems harder than the first.
