Privacy Coins Explained: How They Differ From Other Cryptos

Privacy coins represent an important class of cryptocurrencies that shield transaction details. They empower users with enhanced confidentiality by concealing sender, receiver, and amount data. As of May 2025, privacy coins navigate increasing regulatory scrutiny while advancing cryptographic techniques.

While privacy coins are a unique niche within the sector, they operate much differently than most crypto projects. Also, such tokens are often subjected to more complex regulatory and legal developments. Here’s a detailed overview of how these assets work.

What are privacy coins in crypto?

Privacy coins represent cryptocurrencies engineered to keep transaction details confidential. They differ from transparent chains by hiding key on-chain data, such as addresses and amounts. Users leverage these coins for legitimate privacy needs and, at times, illicit purposes. Privacy coins employ advanced cryptography to achieve anonymity on public ledgers.

Beyond confidentiality, privacy coins support selective disclosure features for corporate use cases, enabling users to prove transaction validity without revealing amounts. Some networks experiment with compliance-ready modules that allow optional auditability by authorized parties. These hybrid models aim to reconcile user privacy with regulatory requirements and financial transparency.

Overview of major privacy coins

• Monero (XMR): Launched in 2014, Monero implements ring signatures, stealth addresses, and RingCT to conceal senders, recipients, and transaction amounts. The network added Bulletproofs for efficient range proofs and Dandelion++ plus Tor/I2P support to mask network traffic. Monero’s privacy-by-default model attracts users needing strong anonymity, making it the largest privacy coin by market capitalization.
• Zcash (ZEC): Debuting in 2016, Zcash offers optional privacy via zk-SNARK zero-knowledge proofs. Shielded transactions hide all details on a separate pool, while transparent transactions function like a traditional blockchain. Despite advanced cryptography, many users transact transparently, limiting growth of the private pool.
• Dash (PrivateSend): Dash uses PrivateSend, a CoinJoin-style mixer run by masternodes to mix coins from multiple users. It obscures input-output links while preserving visible amounts. Users can choose between private and regular transactions.
• Firo (formerly Zcoin): Firo evolved from Zerocoin/Sigma into Lelantus, enabling trustless ‘burn and mint’ privacy without needing trusted setups. It breaks linkability through zero-knowledge proofs while hiding amounts. Firo developers continue to refine protocol efficiency.
• Pirate Chain (ARRR): Pirate Chain enforces private transactions by default using zk-SNARKs, so every transfer hides sender, receiver, and amount. Its complete privacy stance sacrifices some liquidity but maximizes anonymity.
• Mimblewimble coins (Beam, Grin): Both Beam and Grin use Mimblewimble’s confidential transactions and no explicit addresses to hide amounts and participants. They achieve compact blockchains but require interactive transaction construction.
• Secret Network (SCRT): Secret Network extends privacy to smart contracts by encrypting inputs, outputs and state. Developers can build privacy-preserving decentralized applications while preserving blockchain security.

How privacy coins work 

Privacy coins rely on specialized cryptographic techniques that obscure transaction metadata. Ring signatures mix a user’s input with decoys to break linkage between senders and transactions.

Stealth addresses generate unique one-time public keys for recipients, ensuring no address reuse. Zero-knowledge proofs, confidential transactions and network-level mixing combine to mask amounts and participant identities on-chain.

Different protocols balance privacy with performance. For example, Mimblewimble coins offer compact chains but require interactive transactions, while zk-SNARK systems involve heavier computation and trusted setups. Research is underway to develop trustless proofs and quantum-resistant schemes.

Regulatory developments and legal challenges

Regulators worldwide have imposed restrictions on privacy coins due to their potential misuse in illicit finance. Several countries, including Japan, South Korea and Australia, have banned or limited their use and exchange listings.

The European Union’s MiCA framework prohibits regulated entities from offering anonymity-enhanced tokens, prompting major exchanges to delist these assets. As a result, liquidity on centralized platforms has declined and trading has shifted to niche venues.

Privacy coins occupy a small but active segment within the broader cryptocurrency market. Monero leads with a market cap in the low billions of dollars and processes tens of thousands of daily transactions. Other privacy coins maintain smaller market valuations and lower volumes, reflecting limited mainstream adoption. Darknet marketplaces and privacy advocates drive much of the usage, while regulatory hurdles constrain wider integration.

Major incidents and events 

• Massive BTC laundering via Monero (April 2025): Researchers identified 3,520 BTC (~$330million) converted into Monero within hours, causing a 50% intraday price spike. This laundering highlighted ongoing illicit use despite many exchanges delisting XMR.
• UK darknet dealer conviction (2023): British authorities seized Monero from a major darknet vendor and later sold the confiscated funds. It marked the first UK court-approved Monero seizure, achieved through traditional investigative methods rather than breaking Monero’s cryptography.
• Finland NBI tracks Monero (2024): The Finnish National Bureau of Investigation reported tracing some Monero transactions. Developers attributed these successes to user operational security failures, not flaws in the protocol itself.
• Kraken delists XMR in EEA (2024): Kraken announced that by October 31, 2024, it will terminate XMR trading and deposits for European Economic Area customers. The exchange cited evolving regulatory requirements under MiCA and local AML/counter-terrorism financing rules.
• Tornado Cash ruling (December 2024): The US Fifth Circuit held that code alone does not constitute property, overturning Treasury sanctions on the Tornado Cash mixer. The decision prompted a brief rally in privacy-focused tokens while regulators sought clarity on mixing services.
• IRS Monero bounty (2020): The US Internal Revenue Service offered up to $625,000 for tools to trace Monero transactions. This initiative underscored regulators’ concern over money laundering risks and spurred ongoing research into analytical methods without breaching cryptographic privacy.

Final thoughts

Privacy coins demonstrate the balance between technological advancement and regulatory control within cryptocurrency. Their cryptographic innovations deliver strong anonymity but also attract legal scrutiny and exchange delistings. Adoption remains strong among privacy-conscious users and niche markets, yet broader acceptance depends on compliance solutions.

Developers improve protocol performance and explore selective privacy features to meet regulatory demands. Upcoming upgrades may introduce auditability modules and integration with sanctioned-entity screening tools.

Users and authorities will test these hybrid approaches in the coming years. The evolution of privacy coins will shape the future of digital finance, determining whether anonymity and oversight can coexist.

1. 01.

   Are privacy coins legal?

   

   They remain legal in many jurisdictions but are banned or restricted in others. For example, South Korea prohibits crypto exchanges from listing privacy coins, and Japan outlawed them in 2018, while the EU’s MiCA framework bars regulated entities from offering anonymity-enhanced tokens, leading major exchanges to delist these assets.

2. 02.

   How is Monero different from other crypto?

   

   Monero hides sender, recipient, and amount data by default using ring signatures, stealth addresses, and RingCT, whereas Bitcoin and most other cryptocurrencies record all addresses and amounts publicly on-chain. Its built-in privacy makes each XMR unit fully fungible — no coin carries a traceable history, unlike Bitcoin, where transaction history can affect acceptability.

3. 03.

   Are privacy coins safe?

   

   They rely on well-vetted cryptographic protocols — ring signatures, zk-SNARKs, and confidential transactions — that have undergone rigorous audits. Still, researchers have demonstrated side-channel attacks against some privacy implementations, showing no system is impervious to all threats. Moreover, user operational-security mistakes (e.g., leaking IP metadata) and exchange delistings or seizures can jeopardize both asset safety and anonymity.