Grayscale: In the Age of AI, Financial Privacy is Becoming a Core Issue for Crypto

AI is making on-chain data increasingly "nowhere to hide". As real-world finance moves onto the blockchain at scale, privacy may shift from a marginal demand to a fundamental infrastructure.

Written by: Michael Zhao

Compiled by: Starbase Accelerator

Overview of the Report

In 2026, Grayscale Research released "Zcash: Financial Privacy in the Age of AI," discussing whether financial privacy will re-emerge as an important foundational attribute of digital currencies in the context of stablecoins, public blockchains, and the rapid development of AI. Grayscale believes that the digitization of financial records and the development of internet banking have prompted society to re-discuss financial privacy. Today, on-chain financial applications such as stablecoins have expanded the scale of public financial data, while AI has further reduced the cost of analyzing and tracking this data, indicating that the market may be entering a new round of discussions on financial privacy.

The report uses Zcash as a primary case study to analyze the development path of crypto privacy technologies, Zcash's Shielded Transaction and selective disclosure mechanisms, as well as technological upgrades, product improvements, and adoption over the past decade. Additionally, Grayscale proposes potential value reassessment logic based on ZEC's current market capitalization and privacy asset market share, discussing risks related to regulation, historical cryptographic design, quantum computing, and protocol execution.

The report primarily unfolds from the following dimensions:

• Financial Privacy Demand: The continuous development of on-chain financial applications such as stablecoins and RWAs, combined with AI's enhanced analytical capabilities for public financial data, may drive the market to reassess the value of financial privacy.
• Privacy Technology Pathways: Comparing different solutions such as mixing, confidential transactions, default privacy, and Shielded Transactions, analyzing how Zcash achieves transaction verification and information protection through zero-knowledge proofs.
• Zcash Technology and Adoption: Reviewing protocol upgrades such as Sapling, Orchard, and Ironwood, as well as adoption scenarios for wallet experience, Shielded Transactions, and Shielded Supply.
• Selective Disclosure: By using Viewing Keys, it retains the ability to disclose information to specific third parties while protecting public transaction privacy, providing a potential balance between privacy and compliance.
• Valuation and Risks: Grayscale proposes value reassessment scenarios based on ZEC's current market share while analyzing potential risks related to regulation, cryptographic security, quantum computing, and protocol upgrades.

Compared to the investment value of ZEC itself, a more noteworthy question raised by this report is: As stablecoins, RWAs, and more real-world financial activities enter public blockchains, is a completely transparent ledger still suitable for carrying the next stage of digital finance?

Transparency Was Once an Advantage of Blockchain, but It May Become a New Problem for On-Chain Finance

Bitcoin solved one of the most important problems of digital assets: how to verify asset authenticity, prevent double spending, and complete value transfer without a centralized institution. However, this verifiability is built on a highly transparent ledger. In public blockchains, wallet balances, counterparties, and historical transactions can be retained for a long time. Even if the address itself does not directly display the real name, the KYC of exchanges, stablecoin inflows and outflows, counterparties, and the funding relationships between wallets may gradually become clues for identity association.

When the on-chain activities are merely Token Transfers between Crypto Native users, this transparency is more of an advantage. However, as more real-world financial activities move on-chain, it may also bring new problems. For individuals, asset balances and spending records are not suitable for being publicly disclosed by default; for businesses, information regarding salaries, vendor payments, customer settlements, and treasury may involve trade secrets; for financial institutions, the public wallet structure and real-time fund flows may even expose trading strategies and asset allocations.

Therefore, Grayscale emphasizes that Privacy and Anonymity are not the same concept. The privacy demands in the real financial system are often not to hide illegal activities, but to maintain the information boundaries necessary for normal economic activities. Cash does not publicly disclose the past spending records of its holders, and bank accounts do not default to display balances and complete transaction histories. However, this kind of confidentiality, which is common in the real financial world, does not exist in public blockchains.

AI is Further Amplifying Privacy Issues in Public Blockchains

Public blockchains have always been transparent, but Grayscale believes that the development of AI is changing the actual impact of this transparency. In the past, although there was a large amount of public data on-chain, truly analyzing address relationships, transaction patterns, and fund flows still required specialized tools and high data processing costs. With the combination of large models, AI agents, and on-chain analytical tools, the threshold for understanding and associating this data on a large scale may further decrease.

In other words, blockchain is moving from "data publicly exists" to "data can be automatically understood and continuously analyzed." Meanwhile, stablecoins and RWAs are bringing more real-world financial activities on-chain. If future activities such as salaries, consumption, corporate settlements, cross-border payments, and securities trading gradually use on-chain infrastructure, the public ledger will record not just Token Transfers but increasingly more real economic relationships.

This is also an important reason why Grayscale believes financial privacy may regain attention: stablecoins and RWAs expand the scale of on-chain financial data, while AI enhances the ability to understand and track this data. The combination of the two may gradually shift Privacy from a niche topic in Crypto to an issue that digital financial infrastructure needs to address.

Privacy in Crypto is Not Just About "Privacy Coins"

Privacy has always been one of the concepts in Crypto that is most easily oversimplified. In reality, the privacy technologies adopted by different blockchains exhibit significant differences and can be roughly divided into several pathways:

• Mixing Privacy: Solutions like Bitcoin CoinJoin, Bitcoin Cash CashFusion, and Dash PrivateSend primarily reduce the traceability of fund flows through mixing transactions, but the underlying ledger remains public.
• Confidential Transactions: Systems like Litecoin MWEB can hide certain information such as transaction amounts, adding a degree of transaction privacy on top of the public ledger.
• Default Privacy: Monero incorporates privacy mechanisms as a default transaction experience, where key transaction information is not publicly disclosed by default.
• Shielded Transactions: Zcash allows users to choose between transparent transactions or shielded transactions, verifying transaction legitimacy through zero-knowledge proofs in Shielded Transactions without disclosing the sender, receiver, and transaction amount.

Like Bitcoin, Zcash has a fixed supply of 21 million coins and uses Proof of Work, but the biggest difference is that users can choose whether to disclose transaction information. The core technology behind it, Zero-Knowledge Proof, can be simply understood as: the network can prove that "this transaction complies with the rules" without needing to know "what exactly happened in this transaction." The network can still verify that the sender possesses the assets, that there is no double spending, and that the asset quantities before and after the transaction comply with the rules, without needing to see the complete transaction information.

This provides a design approach different from traditional public blockchains: verifiable does not mean that all information must be public.

More Important Than "Complete Anonymity" May Be Selective Disclosure

If privacy technology hopes to enter mainstream finance, merely achieving "nobody can see" is not enough. Enterprises, financial institutions, and RWA issuers still need to face audit, AML, tax, and regulatory requirements. Therefore, a more noteworthy design of Zcash is actually the Viewing Key.

The Viewing Key allows users to keep Shielded Transactions invisible to the public while actively opening corresponding viewing permissions to specific third parties. For example, a company can choose not to publicly disclose its transaction history to the entire internet but can provide relevant information to auditing agencies or other authorized parties when audit or compliance is needed. This creates not a binary choice between "complete transparency" and "complete anonymity," but a third possibility:

• Publicly Private + Selectively Disclosed, meaning transactions remain private to the public but can be selectively disclosed to specific institutions as needed.
• This mechanism is especially noteworthy for stablecoins, RWAs, and institutional-level on-chain finance. Traditional finance itself is built on a similar information permission structure: customers can view their accounts, financial institutions process data based on authorization, and regulatory agencies obtain necessary information according to corresponding procedures, but the general public cannot directly query anyone's complete financial records.
• If more traditional financial activities enter public blockchains, on-chain finance will also need to re-establish similar information boundaries. The real problem that needs to be solved in the future may no longer be just "whether privacy is needed," but who has the right to see what, and under what circumstances viewing permissions can be obtained.

Zcash Has Been Around for Ten Years, Why Has Privacy Still Not Become Mainstream?

If there is a real demand for financial privacy, a natural question arises: why has Zcash, running since 2016, not seen privacy assets truly enter the mainstream of Crypto?

One important reason comes from technology and product experience. Early Zcash Shielded Transactions required high computational resources, and wallet support and user experience were far inferior to ordinary transparent transactions. Over the past few years, Zcash has continuously lowered the usage threshold for Shielded Transactions through upgrades such as Sapling, Orchard / NU5, and Unified Addresses. In 2026, Ironwood further improved protocol security to address potential supply integrity issues exposed by the previous Orchard Circuit.

Changes are also occurring at the wallet level. Zodl (formerly Zashi) is transitioning from a purely ZEC wallet to a Shielded-first transaction entry, providing built-in Swap through NEAR Intents and supporting CrossPay, allowing users to send Shielded ZEC while the recipient receives other assets. The importance of such improvements lies in the fact that even if users can use privacy transactions, they often need to re-enter a transparent environment during the Swap, payment, or asset conversion process; a truly complete privacy experience requires minimizing these privacy "breakpoints."

Meanwhile, there are some positive changes in on-chain data. As of July 20, 2026, Shielded Transactions have accounted for over 50% of Zcash user activity during certain periods, and the Shielded Supply has reached approximately 4.2 million ZEC, accounting for about 25% of the current circulating supply. This data at least indicates that Zcash's privacy features are not just limited to protocol design but have actual usage demand.

However, whether Zcash can truly enter the next stage still hinges on whether Privacy can further penetrate payment, Stablecoin, cross-chain assets, and other financial scenarios from Zcash's native users. Transitioning from "privacy can be used" to "privacy can be used at scale" remains a core issue that needs to be validated.

How Does Grayscale View the Current Market Valuation of ZEC?

Grayscale also discussed the current market valuation of ZEC in its report. Its Currencies Crypto Sector includes 15 types of digital currency assets, with a total market capitalization of about $1.4 trillion, of which Bitcoin accounts for about 90%; ZEC's current market capitalization is about $8 billion, only about 0.6% of this sector. Based on this, Grayscale proposed a scenario calculation: if Zcash can capture 5% of this market in the future, its corresponding value could reach approximately 9 times the current level.

It is important to note that this figure is a scenario hypothesis proposed by Grayscale based on market share changes and is not derived from fundamental indicators such as cash flow or network income. The report presents this calculation mainly to illustrate its judgment on the current pricing of privacy assets in the market, indicating that the Crypto market currently assigns relatively limited value to Privacy.

Corresponding to the valuation discussion, the report also listed the current actual adoption data of Zcash. As of July 20, 2026, Shielded Transactions have accounted for over 50% of user activity during certain periods, and the Shielded Supply is approximately 4.2 million ZEC, accounting for about 25% of the current circulating supply. Grayscale uses this data to illustrate that Zcash's privacy features have formed a certain degree of actual on-chain usage, while whether it can further expand adoption still requires continuous observation.

The Biggest Contradiction of Privacy Still Comes from Regulation and Distribution

Privacy assets have long faced a structural contradiction: the stronger the privacy protection, the more likely it is to increase compliance costs for exchanges, wallets, and financial institutions. Zcash's Viewing Key provides a potential solution to this problem, as users can proactively disclose Shielded Activity to specific institutions, but Grayscale also acknowledges that this does not completely eliminate regulatory risks.

Global AML/CFT rules still require Virtual Asset Service Providers to perform customer due diligence, maintain transaction records, report suspicious activities, and comply with the Travel Rule; regulatory frameworks such as the EU's MiCA further strengthen the authorization and supervision requirements for Crypto service providers. Even if the protocol layer can achieve Selective Disclosure, there remains significant uncertainty about whether exchanges, custodians, and regulatory bodies are willing to accept this model.

In addition, Zcash itself faces several types of risks:

• Historical Cryptographic Risks: Older versions of the Shielded Pool relied on Trusted Setup. Although Orchard and Halo have improved the relevant design, the old pool still poses certain legacy risks.
• Technical and Execution Risks: Subsequent upgrades such as Tachyon and Crosslink involve complex protocol modifications that require continuous coordination among developers, wallets, and infrastructure providers.
• Long-term Security Risks: Quantum computing is not a problem unique to Zcash, but networks relying on complex cryptographic systems still need to consider corresponding quantum-resistant solutions in advance.

Therefore, the investment logic for Zcash cannot simply be summarized as "the AI era needs privacy, so ZEC will benefit." What truly determines whether Privacy can become mainstream infrastructure is whether technical availability, regulatory acceptance, ecological distribution, and real user demand can all coexist.

Conclusion: On-Chain Finance May Need to Redefine "Transparency"

For the past decade, "public transparency" has been one of the most important value propositions of blockchain, but as Stablecoins, RWA, and institutional assets gradually enter the chain, the distinction between verifiability and complete openness may become increasingly important. Enterprises will not be willing to publicly disclose salaries, suppliers, customer relationships, and treasury just because they use blockchain; financial institutions will also not be willing to expose all holdings and trading strategies in real-time just because of asset tokenization.

Therefore, what is truly worth noting in Grayscale's report is not whether ZEC can capture 5% of the cryptocurrency market share, but rather that it raises a more fundamental question: If blockchain ultimately carries more and more real financial activities, who should see what? Zero-knowledge proofs and Selective Disclosure provide a possible direction—underlying protocols can still verify whether transactions are legitimate without permanently exposing all economic information to the public and can disclose information according to permissions when needed for auditing, regulation, or business.

As AI enhances the analytical capabilities of public financial data, Privacy may no longer just be an independent track for "privacy coins" but gradually become a foundational capability that Stablecoins, RWA, payments, and institutional-level on-chain finance need to consider. Whether Zcash can ultimately capture this trend remains uncertain, but "how to establish a new balance between verifiability and confidentiality" may become an increasingly important question as on-chain finance continues to expand in scale.