The privacy technology in the crypto world has never truly escaped the confines of "narrow" and "single-user" frameworks.
Written by: milian
Translated by: AididiaoJP, Foresight News
Every major technological wave begins with a dedicated or single group and then evolves into a general or multi-group application.
Early computers could only perform one task at a time: cracking codes, processing census data, calculating ballistic trajectories, and it took a long time before they became shareable, programmable machines.
The internet initially started as a small peer-to-peer research network (ARPANET) and later evolved into a global platform that enabled millions to collaborate in a shared state.
Artificial intelligence follows the same path: early systems were narrow expert models built for a single domain (chess engines, recommendation systems, spam filters) and later evolved into general models capable of cross-domain work, fine-tuning for new tasks, and becoming a shared foundation for others to build applications.
Technology always starts in a narrow or single-user mode, designed for one use or one person, and then expands into a multi-user mode.
This is precisely where privacy technology stands today. The privacy technology in the crypto world has never truly escaped the confines of "narrow" and "single-user" frameworks.
Until now.
Summary:
Privacy technology follows the same development trajectory as computing, the internet, and artificial intelligence: system-specific, single-user, then general, multi-user.
Crypto privacy has been trapped in a narrow single-user mode because early tools could not support a shared state.
Privacy 1.0 is limited in expressive capability, single-user privacy: no shared state, primarily relying on zero-knowledge proofs, client-generated proofs, requiring developers to write custom circuits, making the experience difficult.
Early privacy began with Bitcoin's CoinJoin in 2013, followed by Monero in 2014, Zcash in 2016, and later Ethereum tools like Tornado Cash (2019) and Railgun (2021).
Most Privacy 1.0 tools rely on client-side zero-knowledge proofs, leading to confusion between "zero-knowledge proofs for privacy" and "zero-knowledge proofs for verification," even though many "zero-knowledge" systems today are designed for verification rather than privacy.
Privacy 2.0 is based on multi-party computation or fully homomorphic encryption, enabling encrypted shared state multi-user privacy, allowing users to collaborate privately as they would in a public shared state on Ethereum and Solana.
Encrypted shared state means the crypto world finally has a general encrypted computer, opening up new design spaces: dark pools, privacy liquidity pools, private lending, blind auctions, confidential tokens, and new creative markets, which can even be implemented on existing transparent chains.
Bitcoin introduced public isolation state; Ethereum introduced public shared state; Zcash introduced encrypted isolation state; Privacy 2.0 fills in the last piece of the puzzle: encrypted shared state.
Arcium is building such an encrypted computer, architecturally similar to proof networks like Succinct, but using multi-party computation instead of zero-knowledge proofs, with its Arcis tool compiling Rust into multi-party computation programs to achieve multi-user encrypted computation.
Emerging applications based on Privacy 2.0 include: Umbra using Arcium to implement privacy pools for confidential balances and exchanges, Pythia's private opportunity market, and Melee's upcoming private odds and adjudication opinion market.
To understand how we got to today and why encrypted shared state is so important, we need to start from the origins of privacy technology.
Privacy 1.0
The first storm of crypto privacy began here.
Users gained transaction privacy through mixers, privacy liquidity pools, and privacy cryptocurrencies. Later, some applications faced legal issues, sparking debates about whether and how privacy tools should handle illegal activities.
Privacy 1.0 opened the single-user privacy mode. People could coordinate but could not dynamically collaborate as they would on a programmable blockchain, limiting the expressive capability of privacy.
Key features of Privacy 1.0:
No shared state, privacy in "single-user mode," limited application scope
Primarily relies on zero-knowledge proof technology
Client-side zero-knowledge proofs offer the highest privacy, but complex applications are slow
Developers face challenges, needing to write custom circuits to build privacy applications
Crypto privacy initially appeared on Bitcoin, years before advanced cryptographic techniques like zero-knowledge proofs entered the crypto space. Early Bitcoin privacy was not true "cryptographic privacy," but rather clever coordination techniques aimed at breaking the deterministic associations of public ledgers.
The earliest was CoinJoin in 2013, where users combined transaction inputs and outputs to obfuscate payment relationships. It used almost no cryptography but introduced privacy at the transaction level.
Subsequent applications like CoinShuffle (2014), JoinMarket (2015), TumbleBit (2016), Wasabi (2018), and Whirlpool (2018) were all based on mixing processes to make Bitcoin harder to trace. Some added incentives, while others improved user experience or added layered encryption.
None of these provided strong cryptographic privacy. They obscured associations but did not offer the mathematical guarantees and trustless privacy that later zero-knowledge proof systems provided. They relied on coordination, heuristic methods, and mixing randomness rather than formal anonymity proofs.
Privacy Cryptocurrencies
Monero was launched in 2014, making the first serious attempt to build a fully private blockchain for private transfers, rather than as an additional privacy tool for a transparent blockchain. Its model is based on probabilistic privacy through ring signatures, where each transaction by default mixes real inputs with 16 decoy signatures. In practice, this setup can be weakened by statistical attacks like MAP decoders or network layer attacks, reducing effective anonymity. Future upgrades like FCMP aim to expand the anonymity set to the entire chain.
Zcash launched in 2016, taking a completely different path from Monero. It does not rely on probabilistic privacy but is designed from the ground up as a zero-knowledge proof token. It introduced privacy pools powered by zk-SNARKs, providing users with cryptographic privacy rather than hiding within decoy signatures. When used correctly, Zcash transactions do not leak sender, receiver, or amount information, and anonymity increases with each transaction in the privacy pool.
The Emergence of Programmable Privacy on Ethereum
Tornado Cash (2019)
Tornado Cash was launched in 2019, allowing Ethereum to achieve programmable privacy for the first time. Although limited to private transfers, users could first deposit assets into a smart contract mixer and then withdraw using zero-knowledge proofs, achieving real privacy on a transparent ledger. Tornado was widely used legally but fell into serious legal disputes after a significant amount of DPRK money laundering activities occurred through it. This highlighted the necessity of excluding illegal actors to maintain the integrity of liquidity pools, a measure that most modern privacy applications have implemented.
Railgun (2021)
Railgun emerged later in 2021, aiming to push Ethereum privacy beyond simple mixing to achieve private DeFi interactions. It not only mixed deposits and withdrawals but also allowed users to interact privately with smart contracts using zero-knowledge proofs, hiding balances, transfers, and on-chain operations while still settling on Ethereum. This represented a significant advancement over the Tornado model, providing continuous private state within smart contracts rather than a simple mix-extract loop. Railgun remains active and has gained adoption in certain DeFi circles. It is still one of the most ambitious programmable privacy attempts on Ethereum, although user experience remains a major barrier.
Before continuing, it is necessary to clarify a common misconception that persists to this day. With the proliferation of zero-knowledge proof systems, many people believe that anything labeled "zero-knowledge" implies privacy. This is not correct. Most technologies that claim to be "zero-knowledge" today are actually validity proofs, which are strong for scalability and verification but provide no privacy at all.
The disconnect between marketing and reality has led to years of misunderstanding, conflating "zero-knowledge proofs for privacy" with "zero-knowledge proofs for verification," even though they address completely different issues.
Privacy 2.0
Privacy 2.0 is multi-user mode privacy. Users no longer act individually but can collaborate privately as they would on a programmable blockchain.
Key features of Privacy 2.0:
Encrypted shared state, privacy enters "multi-user mode"
Based on multi-party computation and fully homomorphic encryption
The trust assumptions for privacy depend on multi-party computation. Fully homomorphic encryption shares the same assumptions, as its threshold decryption of encrypted shared state requires multi-party computation to execute.
Circuits are abstracted, and developers do not need to write custom circuits (unless necessary).
This is achieved through an encrypted computer, allowing multiple parties to collaborate in an encrypted state. Multi-party computation and fully homomorphic encryption are the core foundational technologies—both support computation on encrypted data.
What does this mean?
The shared state model driving Ethereum and Solana can now exist under privacy conditions. This is not a one-time private transaction or a tool that can only privately prove something, but a general encrypted computer.
It unlocks a whole new design space in the crypto realm. To understand why, we need to review the evolution of states in the crypto world:
Bitcoin introduced public isolation state
Ethereum introduced public shared state
Zcash introduced encrypted isolation state
What has been missing is encrypted shared state.
Privacy 2.0 fills this gap. It spawns new economies, new applications, and unprecedented new domains. In my view, this is the most significant breakthrough in the crypto space since smart contracts and oracle systems.
Arcium is building such technology.
Its architecture is similar to proof networks like Succinct or Boundless, but instead of using zero-knowledge proofs to verify execution, it uses multi-party computation to achieve encrypted data computation.
Unlike SP1 or RISC Zero, which compile Rust into zero-knowledge proof programs, Arcium has Arcis, which compiles Rust into multi-party computation programs. Simply put, it is an encrypted computer.
Another analogy is "Chainlink for the privacy domain."
Privacy Unrelated to Chains and Assets
Arcium is designed to be blockchain-agnostic, capable of connecting to any existing blockchain, achieving encrypted shared state on transparent chains like Ethereum and Solana. Users can gain privacy without leaving their familiar ecosystems. It will first launch on Solana, with the mainnet Alpha version releasing next month.
Zcash and Monero embed privacy into their currencies. This is effective but also creates a currency world with independent volatility. Arcium takes an asset-agnostic approach, adding privacy to users' existing assets. The solutions and trade-offs differ, but flexibility is important for users.
Given this, almost any use case requiring privacy can run on encrypted computation.
The impact of Arcium extends beyond the crypto realm. It is not a blockchain but an encrypted computer. The same engine is also clearly applicable to traditional industries.
Applications and Functions from Zero to One
Encrypted shared state brings unprecedented design space to the crypto world. As a result, the following applications have emerged:
@UmbraPrivacy: Solana privacy pool. Umbra uses Arcium to achieve functionalities that Railgun cannot, supporting confidential balances and private exchanges while handling transfers with zero-knowledge proofs. It provides capabilities far beyond simple private transfers under minimal trust assumptions and offers a unified privacy pool SDK that any project can integrate to achieve Solana transaction privacy.
@PythiaMarkets: An opportunity market providing private windows for sponsors. A new type of information market where scouts bet on underdeveloped opportunities, allowing sponsors to discover information without leaking alpha.
@MeleeMarkets: A prediction market with bonding curves. Similar to Pumpfun, but for prediction markets. The earlier you enter, the better the price. It will develop an opinion market where users can express their views authentically, keeping odds private and adjudications confidential, addressing issues of group collapse and oracle manipulation. Arcium will provide the necessary privacy for the opinion market and private adjudications.
Dark Pools: Projects like @EllisiumLabs, @deepmatch_enc, and Arcium's dark pool demonstration use encrypted shared states to facilitate private trading, avoiding front-running and quote disappearance, achieving the best execution prices.
On-chain Games: Arcium restores secrecy and fair randomness by running hidden states and CSPRNG random numbers within encrypted shared states. Strategy games, card games, fog of war, RPGs, and bluffing games can finally run on-chain. Multiple games have already launched on Arcium.
Private perpetual contracts, private lending, blind auctions, encrypted machine learning predictions, and collaborative AI training are also exciting future use cases.
Beyond these examples, almost any product requiring privacy can be built. Arcium provides developers with complete customization capabilities through a universal encrypted execution engine, and Umbra now also offers an SDK for Solana transfers and exchanges. The combination makes achieving privacy on Solana straightforward for both complex systems and simple integrations.
Confidential SPL: Solana's New Privacy Token Standard
Arcium is also building C-SPL, the Solana confidential token standard. It addresses the pain points of the previous Solana "Privacy 1.0" token privacy standard: difficult integration, limited functionality, and inability to use on-chain programs. C-SPL improves upon this foundation, eliminating the friction that hinders the adoption of privacy tokens.
This makes privacy tokens easy to integrate into any application without adding user burden.
By integrating SPL Token, Token-2022, privacy transfer extensions, and Arcium's encrypted computation, C-SPL provides a practical, fully composable standard for Solana confidential tokens.
Conclusion
We are still in the early stages of this development wave, and the field is broader than any single approach. Zcash and Monero continue to address important issues in their respective domains, and early privacy tools have demonstrated their potential. Encrypted shared states solve fundamentally different problems by allowing multiple users to operate privately in the same state without leaving existing ecosystems. It fills a gap rather than replacing the past.
Privacy is gradually shifting from an optional specialized feature to a core element of application building. It no longer requires new currencies, new chains, or new economic systems; it simply expands the capabilities of developers. The last era established public shared states as a foundation, and the next era will extend this foundation through encrypted shared states, adding a layer that was previously missing.
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