_{Brought to you by:}

“One of the important challenges of our time.”

— Vitalik Buterin, on privacy

Crypto-scale financial privacy is something new

The thing about financial privacy is that it's always been accidental.

In his latest blog post, Vitalik notes that full, unconditional privacy has been “the multi-thousand-year historical norm.”

But the very first financial transactions were not private at all. 

Instead, they were recorded on clay tablets and kept in a central location, often a temple, for the authorities to inspect — so there was no financial privacy in ancient Mesopotamia. 

Only with the advent of physical money about 3,000 years later could people keep their financial lives private.

This was not a policy choice — privacy was just a happy side effect of paying for things with metallic coins.

Even today, there's no practical way for governments or corporations to snoop on transactions made in physical cash, so we've enjoyed about two millennia of full financial privacy — until we started moving most of our money electronically.

As money became digitized, banks became modern-day temples, recording our transactions in ledgers made from spreadsheets instead of clay tablets.

This had many advantages — paper checks, credit cards, payroll systems, wire transfers, ATMs — and one big disadvantage: It made large-scale crime much easier.

Modern banks made money move faster and further, which meant crime could too.

The Bank Secrecy Act of 1970 was a response to growing concerns about the money laundering, drug trafficking and tax evasion that modern banking enabled.

This was controversial from the start because the Act allows governments to obtain records of bank transactions without a warrant or even probable cause. 

But the courts have deemed that constitutional on the basis of the “third-party doctrine”: In US law, individuals have no reasonable expectation that information they voluntarily give to a third party will be kept private.

Crypto types should understand the logic as it applies to banks: When you give a bank your money, it’s no longer your money, it’s the bank’s money.

The Bank Secrecy Act requires banks to tell the government what they do with their money — so, after 1970, only cash offered the kind of financial privacy that people had come to take for granted.

Now, of course, crypto does too — but at scale.

Crypto takes the privacy-preserving innovation of physical money and frees it from the laws of physics. 

Previously, money launderers faced the difficult choice of limiting their activities to whatever they could carry in a few duffel bags or sending their money to a bank where it would be subject to KYC/AML checks.

Now, by running their stolen funds through a mixer like Tornado Cash, money launderers can enjoy the privacy of transacting in cash — but at the scale of modern banking.

True cypherpunks are perfectly happy with that.

As Erik Vorhees persuasively argues: “An objective protocol must permit bad actors operating on it.”

But how many true cypherpunks are there?

Most people believe in the small-scale privacy offered by cash, but not the large-scale anonymity offered by crypto.

No one laments the discontinuation of the $10,000 bill, for example, because they recognize that large-denomination bills facilitate too much crime. 

(The US government once issued a $100,000 bill, as well, but only for use by banks.)

Crypto facilitates crime on a larger scale: If North Korea had stolen $1.4 billion in $100 bills instead of in ETH, the haul would have filled about 600 duffel bags — which it probably would not have gotten past airport security (and the baggage fees would have been killer, too).

As a society, we are fine with the amount of crime that can be conducted by a few duffel bags of cash — it’s a tradeoff we accept in return for the convenience and privacy that cash provides for everyone.

In banking, too, the optimal amount of crime is greater than zero, because people understand that banking is important.

But few believe that the benefit of full financial privacy (provided by crypto) is sufficient to offset the crime that crypto already enables.

Vitalik’s blog post makes a compelling case that crypto-enabled privacy is vitally necessary — for proof-of-personhood, anti-fraud detection, medical advances and even economic growth.

Strong cryptographic guarantees of privacy, he argues, will “accelerate technological and social progress” by encouraging the utilization of data that would otherwise be inaccessible due to privacy concerns.

And probably everyone can agree that we don’t want governments to know what we’re thinking, as Vitalik says is the inevitable endpoint of a world without cryptographically ensured privacy.

The case for financial privacy, however, is harder to make.

Vitalik cites “privacy pools” as a “financial privacy solution that can exclude bad actors without requiring backdoors” — but I’m not sure regulators (not being mathematicians) will be too keen to rely on the inscrutable math of zero-knowledge proofs for KYC checks.

That is a problem, because historically, both popular opinion and the law have agreed that financial privacy should be limited to the amount of cash that fits in a duffel bag.

Crypto changes that accidental calculus — and the kind of privacy it enables demands a whole new debate.

— Byron Gilliam

_{Brought to you by:}

ZKsync is accelerating institutional blockchain adoption and the rise of tokenization.

Institutions choose ZKsync to move tokenized assets securely across enterprises while preserving privacy and governance.

With gasless transactions, seamless onboarding, and scalable ZK infrastructure, enterprises can transfer financial products and data privately using ZK Stack — an open-source, trustless blockchain platform designed for speed, low costs, security, and interoperability without sacrificing control.

1. SOL remains bullish amid broader market stagnation

2. Demand for Canada solana ETFs has room to grow as US versions wait their turn

3. US equities, dollar continue to slip weeks after initial Liberation Day announcement

4. ZKsync tokens worth $5M swiped in admin account breach

5. [Sponsored] WalletConnect unlocks transferability of WCT token

BOTTOM IS IN, Says Trader Who Predicted the Crash

Mel Mattison shares why he thinks we’re on the cusp of another inflationary bubble. Find out about the danger of growing entitlement obligations and what more yield curve distortion mean for markets. 

Listen to Forward Guidance on Spotify, Apple Podcasts or YouTube.

_{Brought to you by:}

ZKsync is accelerating institutional blockchain adoption and the rise of tokenization.

Institutions choose ZKsync to move tokenized assets securely across enterprises while preserving privacy and governance.

With gasless transactions, seamless onboarding, and scalable ZK infrastructure, enterprises can transfer financial products and data privately using ZK Stack — an open-source, trustless blockchain platform designed for speed, low costs, security, and interoperability without sacrificing control.