Crypto privacy entered the spotlight in 2025 as new technology clashed with regulators, a trend that is set to intensify in 2026 with developers pushing the envelope and legal battles approaching a conclusion.
In its early days, Bitcoin (BTC) was often viewed as an anonymous payment tool despite its transparency. Since then, the introduction of onchain analytics and surveillance has made it increasingly apparent that transparent blockchains are far from private.
This led to an arms race between pro-privacy developers, onchain surveillance organizations and regulators, culminating in high-profile legal cases. The developers of the decentralized Ether (ETH) mixer Tornado Cash are fighting over whether software development constitutes a financial service, and those behind the Bitcoin non-custodial mixer Samourai Wallet were recently sentenced to prison by a US court.
Despite this, privacy-focused development picked up this year. Industry experts suggest that while the privacy tool stack remained largely unchanged in 2025, those tools are expected to evolve in 2026 thanks to a new generation of “pragmatic privacy,” ensuring privacy and compliance with sanctions.
How we sleepwalked into traceable money
Payment processors being able to clearly determine the parties, products and services involved in transactions allows for censorship. This is far from a theoretical danger, with leading PC game distributor Steam and competitor Itch.io purging adult content in 2025 following pressure from payment processors. Before that, the whistleblowing website WikiLeaks was cut off by payment providers, despite the US Treasury stating in 2011 that it could not be sanctioned.
WikiLeaks turned to Bitcoin, cementing it as uncensorable money. Bitcoin was born from the same cypherpunk circles that saw the circulation of Timothy May’s — an engineer influential to Bitcoin development and co-founder of the cypherpunk mailing list — “Crypto Anarchist Manifesto.”
The document described encrypted exchanges that ensured total anonymity, freedom of speech and the freedom to trade, dating back to 1988. Most of the spotlight in crypto nowadays is on institutional adoption, regulatory breakthroughs and financial speculation, but the crypto community never stopped building for digital rights and privacy.
Related: Crypto urges SEC to see the good in blockchain privacy tools
The three layers of crypto privacy in 2026
One can think of crypto privacy as operating in three layers. At the protocol layer, layer 2s (L2s) and privacy coins like Monero (XMR) use encryption, shielded pools and custom transaction formats to hide who’s paying whom and how much.
At the user layer, privacy depends on user prowess: wallet choice, address reuse, device fingerprints, network habits (VPN/Tor), privacy tools and general operational security (OpSec).
At the perimeter layer, fiat on- and off-ramps, such as crypto exchanges, banks, stablecoin issuers, and analytics firms that connect blockchain activity to real identities, can strip away protocol privacy earned on other layers.
Nathaniel Fried, the co-founder and CEO of 0xBow — the company behind Ethereum-based onchain privacy tool Privacy Pools — told Cointelegraph that the perimeter layer, and mostly fiat on- and off-ramps are a major privacy chokepoint. For compliance, such platforms test deposits using blockchain analytics services, which often exclude funds from most privacy-preserving services, he said.
Zachary Williamson, the co-founder and CEO of privacy-focused decentralized blockchain Aztec, told Cointelegraph that much of privacy protection should be handled for users. “It is not reasonable to expect users to have an advanced understanding of what information they are or aren’t broadcasting,” he said, adding that “this must be handled safely and automatically by the application layer.“
The new privacy tech stack
As explained above, acquiring privacy as a crypto user requires an approach that covers the protocol, user and perimeter layers. Williamson also recognized Privacy Pools as the only notable change in privacy tool availability in 2025.
He said that the team “has been doing excellent work designing safer ways of transacting privately.” Williamson chose anoncoin Zcash (ZEC) as his recommendation for the protocol layer until Aztec’s mainnet launch.
Privacy Pools, as recommended by Fried, are a shared pool where users deposit and later withdraw with a zero-knowledge proof that their funds originated from a “clean” subset of deposits. This allows for anonymity while proving sanction compliance.
Still, correct use is essential and keeping the assets in the pool for some time helps ensure stronger anonymity. Fried pointed out that withdrawing back to the depositing address does not improve one’s privacy, and provided another example of bad usage:
cointelegraph.com