Privacy coins: The last 1000x opportunity in the crypto space

Author: mert | helius.dev Source: X, @0xMert_ Translation: Shan Ouba, Jinse Finance

In short, Bitcoin faced three major problems at its inception: legitimacy, programmability and scalability, and privacy.

Bitcoin solved the legitimacy problem by becoming a trillion-dollar asset, Solana and Ethereum solved the programmability and scalability problem, and privacy is the only remaining unsolved problem (thus creating a market gap with asymmetric returns), with public chains like Zcash leading the way.

I call privacy technology the last thousand-fold opportunity or the last PvE battle, not just as an eye-catching gimmick (although it does have that effect), but more importantly, based on the asymmetric opportunities and gaps gradually emerging in the market, coupled with the ripening of the macro-level timing. This field not only includes zero-knowledge proofs, but also technologies such as coin mixers, fully homomorphic encryption (FHE), and secure multi-party computation (MPC).

Development History

Bitcoin originated from the cypherpunk movement, aiming to create a native internet currency, a direct response to the 2008 financial crisis. Early Bitcoin was characterized by innovation, anarchism, and uncertainty—no one could be sure of its success, making the struggle for legitimacy a core objective. As its popularity grew, Bitcoin faced two major criticisms: a lack of programmability (which later led to scalability issues) and a lack of privacy.

Ethereum was created to address the lack of programmability, while Solana focuses on solving the scalability problem within programmable scenarios. The development of the cryptocurrency field over the past 5 to 8 years has followed this process, while Bitcoin's legitimacy has gradually gained acceptance. In the future, the areas of programmability/scalability and the Bitcoin ecosystem will continue to improve, but breakthroughs of a thousandfold are unlikely—meaning future improvements are more likely to be marginal rather than catastrophic.

On the other hand, Zcash was created to address another major criticism: the lack of privacy.

If we consider the technological development of human civilization as a technology tree (as shown in the diagram), Zcash's goal is to achieve a breakthrough in the privacy branch. The issue of insufficient privacy has long been acknowledged by Satoshi Nakamoto (who cited Zooko's views in his first Bitcoin-related post) and industry pioneers like Hal Finney in public forums. In its early days, the core problem facing digital cash was the double-spending problem (the same funds being spent twice). To solve this problem, it was necessary to ensure that all users could see the account balances of others—this is the main reason why blockchains are transparent by default today, and it is an inevitable result of solving the double-spending problem. In fact, Satoshi Nakamoto publicly stated his willingness to add zero-knowledge proof technology to Bitcoin to improve privacy, claiming it would make Bitcoin more complete, but at the time he had not yet found a way to solve the double-spending problem after adding this technology, as it was still too novel at the time. The novelty of zero-knowledge proof technology at the time was evident in Zcash being the first team globally to deploy it in production—not just in the cryptography field, but across all industries. However, due to its novelty and development difficulty, zero-knowledge proofs required multiple iterations to perfect, while simultaneously eliminating reliance on trust assumptions. Therefore, both the Zcash project itself and zero-knowledge proof technology as a whole experienced a difficult development period. This situation continues to this day; zero-knowledge proof technology has finally matured, while the scalability/programmability track has reached the upper limit of the technology's S-curve.

Now that Bitcoin has legitimacy, and Solana and Ethereum have proven the product-market fit of programmability, privacy technology has become the only remaining area that can bring asymmetric benefits.

Window of Opportunity for Privacy Technology

From a timing perspective, now is a critical juncture for the development of privacy technology. Recently, the cryptocurrency field has been largely driven by speculation and commercial interests, but the origin of cryptocurrencies lies in the cypherpunk movement—the core goal of the cypherpunks was to use cryptography and code to build systems that protect freedom and privacy, and now we are returning to this core direction.

Combined with the macro environment: the spreading debt crisis, Bitcoin's proof of the feasibility of non-sovereign currencies, frequent incidents of power abuse and privacy violations globally (especially in Europe), and the increasing demand for privacy from institutions as they gradually enter the on-chain ecosystem—these multiple factors combined mean that privacy technology and zero-knowledge proof technology will begin a global sweep.

Furthermore, the field of privacy technology has a unique advantage: it is highly complex, has a significant impact, and is novel enough to attract top talent from the field of artificial intelligence.

This will create a positive cycle of talent influx → capital follow-up, further driving the development of the field. It can be said that the era of unstoppable, globally-reaching private currencies has quietly arrived. Note: I do not believe that projects like Bitcoin, Solana, and Ethereum have no room for further growth; their scale will undoubtedly expand further in the future. However, given their current size, the possibility of achieving another 100-fold increase is extremely low.