The cryptocurrency sector is undergoing a confidence crisis. The unavoidable transparency of blockchain technology goes against the growing desire for user privacy and security. The default transparency of blockchain technology, while enabling decentralization, can expose personal details and transaction histories, turning into a privacy nightmare for users. Recent deaths of transit workers in several high-profile incidents have brought this vulnerability into stark focus. This further highlights the vital need for new solutions that provide privacy and compliance.
The Celsius bankruptcy filing, for example, revealed the transaction histories and personal information of almost 500,000 depositors. Likewise, the 2025 Coinbase breach exposed customers’ data from almost 70,000 customers, which could cost the exchange up to $400 million. All these incidents highlight the enormous financial and reputational risk that comes with blockchain’s transparency.
In addition to leading causes of data breaches, the cryptocurrency sector has seen a recent spike in thefts. The $1.5 billion hack on Bybit now ranks as the biggest cryptocurrency heist of all time. From 2011 to 2022, criminals made off with almost $19 billion in illicitly-gained cryptocurrency. This is made up of $6 billion through exploits of centralized systems and $5 billion from hacked DeFi protocols. The growing threat posed by cybercriminals, supercharged by technology such as AI, further compounds these challenges, putting digital assets at risk. AI-powered analytics quickly reveal patterns and anomalies in complex transaction flows that human analysts would take months to identify. This creates a huge advantage for cybercriminals.
Blockchain’s open, permissionless ledgers have quickly turned into a surveillance dystopia—putting users’ privacy, companies’ trade secrets, and financial security in jeopardy. As a result, the market began exploring exciting privacy-first solutions that maximize privacy while minimizing compliance risk. Zero-knowledge proofs, privacy-focused blockchains like Secret Network and Oasis, and compliant aggregators like SilentSwap offer potential avenues for improving privacy within the cryptocurrency ecosystem.
To that end, platforms such as AMR Protocol are adopting Know Your Customer (KYC) measures and anti-money laundering (AML) protocols. They use different approaches to optimize between regulatory compliance and user anonymity in their privacy models. Civic and Shield are two examples of companies actively using zero-knowledge proofs, civic tech and decentralized identity solutions. These technologies enable them to verify compliance without invading user privacy. These technologies empower users to hash their identity and legitimacy and transmit proof of identity without sharing private personal data.
The real challenge is in identifying user privacy-friendly solutions that are compliant with regulatory requirements. Now, as governments and financial institutions ramp up attention on the cryptocurrency space, compliance is more essential than ever. To compete, the industry needs to build and adopt privacy-enhancing technologies that provide users the experience and assurance they need while still pleasing regulators.
