AI makes on-chain data increasingly "nowhere to hide." When real-world finance goes on-chain at scale, privacy may move from a fringe demand to an infrastructure necessity.

Written by: Michael Zhao

Translated by: Starbase Accelerator

Report Overview

In 2026, Grayscale Research published "Zcash: Financial Privacy in the Age of AI," discussing whether financial privacy will again become an important foundational attribute of digital currencies against the backdrop of stablecoins, public blockchains, and rapid AI development. Grayscale argues that the digitization of financial records and the development of online banking have prompted society to revisit financial privacy. Currently, on-chain financial applications like stablecoins have expanded the scale of public financial data, and AI has further reduced the costs of analyzing and tracing this data, leading the market into a new round of discussions about financial privacy.

The report uses Zcash as a primary case study to analyze the development pathways 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 cap and privacy asset market share, while discussing risks related to regulation, historical cryptographic design, quantum computing, and protocol execution.

The report mainly explores the following dimensions:

• Financial privacy demand: Continuous development of on-chain financial applications like stablecoins and RWAs, coupled with AI's enhanced analytical capabilities over public financial data, may prompt the market to reassess the value of financial privacy.
• Privacy technology pathways: Comparing different solutions such as coin mixing, confidential transactions, default privacy, and Shielded Transactions, to analyze how Zcash achieves transaction verification and information protection through zero-knowledge proofs.
• Zcash technology and adoption: Reviewing protocol upgrades like Sapling, Orchard, Ironwood, and adoption rates for wallet experience, Shielded Transactions, and Shielded Supply.
• Selective disclosure: Through Viewing Keys, enabling the retention of privacy for public transactions while retaining the ability to disclose information to specific third parties, offering a potential balance between privacy and compliance.
• Valuation and risks: Grayscale proposes scenarios for value reassessment 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: When stablecoins, RWAs, and more real-world financial activities go on-chain, is a completely transparent ledger still suitable for carrying the next stage of digital finance?

Transparency was once the advantage of blockchain but 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 without centralized institutions, avoid double spending, and complete value transfer. However, this verifiability is built upon a highly transparent ledger. In public blockchains, wallet balances, trading counterparts, and historical transactions can be retained long-term. Even if an address does not directly reveal a real name, relationships arising from exchange KYC, stablecoin deposits and withdrawals, counterparties, and flows between wallets may gradually become clues to identity association.

When the on-chain activities only involve Token Transfers between Crypto Native users, this transparency reflects more as an advantage; but with more real-world financial activities entering on-chain, it may also bring new problems. For individuals, asset balances and spending records are not suitable for default public disclosure; for businesses, payroll, vendor payments, customer settlements, and treasury information may involve business secrets; for financial institutions, public wallet structures 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. Most of the time, the demand for privacy in real financial systems is not to hide illegal activities but to maintain the necessary informational boundaries for normal economic activities. Cash does not publicly reveal a holder's past spending records, and bank accounts do not by default show balance and complete transaction history, but in a public blockchain, this Confidentiality that is commonplace in the real financial world does not exist.

AI is further amplifying the privacy issues of 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, trading 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 barriers to understanding and associating this data at scale may further decrease.

In other words, blockchains are shifting from "data is publicly available" to "data can be automatically understood and continuously analyzed." At the same time, stablecoins and RWAs are bringing more real-world financial activities on-chain. If future activities such as wages, spending, corporate settlements, cross-border payments, and securities trading gradually utilize on-chain infrastructure, the public ledger will record not just Token Transfers but an increasing number of real economic relationships.

This is also a significant reason why Grayscale judges that financial privacy may be receiving renewed attention: stablecoins and RWAs are expanding the scale of on-chain financial data, and AI is enhancing the capability to understand and track this data. With the combination of the two, privacy may gradually shift from a niche topic in crypto to a fundamental issue that digital financial infrastructure must address.

Crypto privacy is not just about "privacy coins"

Privacy has long been one of the concepts in Crypto that is easily oversimplified. In reality, there are significant differences in the privacy techniques adopted by different blockchains, which can generally be divided into several pathways:

• Mixing privacy: Solutions like Bitcoin CoinJoin, Bitcoin Cash CashFusion, and Dash PrivateSend primarily reduce the traceability of fund flow through mixing transactions but still rely on a public underlying ledger.
• 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 applies 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, where transaction legitimacy is verified via zero-knowledge proofs without publicizing sender, receiver, and transaction amount.

Like Bitcoin, Zcash has a fixed supply of 21 million coins and employs Proof of Work, but the key difference lies in the user's choice to disclose transaction information. The underlying core technology, Zero-Knowledge Proof, can be simply understood as: the network can prove "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 asset, avoid double-spending, and confirm that the asset quantities before and after the transaction meet the requirements, without seeing the complete transaction information.

This provides a different design perspective compared to traditional public blockchains: verifiable does not mean all information must be public.

More important than "complete anonymity" might be selective disclosure

If privacy technology hopes to enter mainstream finance, simply ensuring "others cannot see" is not enough. Businesses, financial institutions, and RWA issuers still need to face audit, AML, tax, and regulatory requirements, which makes Zcash's design of the Viewing Key particularly noteworthy.

The Viewing Key allows users to keep Shielded Transactions invisible to the public while actively granting viewing permissions to specific third parties. For instance, a business may choose not to publicly disclose its transaction records but can provide relevant information to auditing institutions or other authorized parties when audit or compliance is necessary. The result is not a binary choice between "complete transparency" and "complete anonymity," but a third possibility:

• Publicly Private + Selectively Disclosed, meaning transactions maintain privacy from 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 authorization structure: customers can view their own accounts, financial institutions process data according to authorization, and regulatory agencies obtain necessary information following appropriate procedures, but the general public cannot directly query anyone’s complete financial records.
• If more and more traditional financial activities move to public blockchains, on-chain finance also needs to re-establish similar informational boundaries. The real issue that needs to be addressed in the future may no longer be simply "is privacy needed," but who has the right to see what, and under what circumstances access can be granted.

After ten years of Zcash, why hasn’t privacy become mainstream?

If there is a genuine demand for financial privacy, a natural question arises: why has Zcash, which has been operational since 2016, not seen privacy assets truly enter the mainstream of crypto?

One significant reason stems from technology and product experience. Early Zcash Shielded Transactions required considerable computational resources, and wallet support and user experience were nowhere near that of regular transparent transactions. Over the past few years, Zcash has continuously lowered the accessibility of 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 previous Orchard Circuits.

The wallet layer is also undergoing change. Zodl (formerly Zashi) is transitioning from a simple ZEC wallet to a Shielded-first transaction portal, offering built-in swaps through NEAR Intents and supporting CrossPay, allowing users to send Shielded ZEC while the recipient receives other assets. The significance of such improvements lies in the fact that even if users can use privacy transactions, they often still need to re-enter a transparent environment during swaps, payments, or asset conversions; a truly complete privacy experience requires minimizing these privacy "breakpoints."

Meanwhile, on-chain adoption data has started to show positive changes. As of July 20, 2026, Shielded Transactions have accounted for over 50% of Zcash user activity during certain periods, and Shielded Supply has reached approximately 4.2 million ZEC, representing about 25% of the current circulating supply. These figures at least indicate that Zcash's privacy features are not merely theoretical—they exist with actual usage demand.

However, whether Zcash can genuinely enter the next phase still hinges on whether privacy can move beyond Zcash's native users to further encompass payment, stablecoin, cross-chain assets, and other financial scenarios. Transitioning from "privacy can be used" to "privacy can be used at scale" remains the core question that needs verification.

How does Grayscale view ZEC's current market valuation?

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

It is worth noting that this figure is a scenario hypothesis proposed by Grayscale based on changes in market share and not a target valuation derived from fundamentals such as cash flow or network revenue. 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.

Alongside the valuation discussion, the report also listed actual adoption data for Zcash. As of July 20, 2026, Shielded Transactions have accounted for over 50% of user activity during certain periods, and Shielded Supply is approximately 4.2 million ZEC, constituting around 25% of the current circulating supply. Grayscale uses this data to show that Zcash's privacy features have reached a certain degree of actual on-chain usage, while whether further adoption can be expanded still requires ongoing observation.

The greatest paradox of privacy still comes from regulation and distribution

Privacy assets have long faced a structural paradox: the stronger the privacy protection, the more it tends to increase compliance costs for exchanges, wallets, and financial institutions. Zcash's Viewing Key offers a potential solution to this issue, as users can proactively disclose their Shielded Activity to specific institutions. However, Grayscale also acknowledges that this does not entirely eliminate regulatory risks.

Global AML/CFT regulations 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 like the EU's MiCA further strengthen the authorization and supervision requirements for crypto service providers. Even if selective disclosure can be achieved at the protocol level, whether exchanges, custodians, and regulatory bodies are willing to accept this model remains highly uncertain.

Additionally, Zcash itself faces several risks:

• Historical cryptographic risk: The old version of the Shielded Pool relied on Trusted Setup. Although Orchard and Halo have improved related designs, the old pool still presents certain legacy risks.
• Technical and execution risks: Follow-up upgrades like Tachyon and Crosslink involve complex protocol changes requiring ongoing coordination between developers, wallets, and infrastructure providers.
• Long-term security risks: Quantum computing is not a problem unique to Zcash, but networks reliant on complex cryptographic systems still need to consider relevant anti-quantum solutions in advance.

Therefore, Zcash's investment logic cannot simply be summarized as "the AI era needs privacy, so ZEC will benefit." The true determinants of whether privacy can become mainstream infrastructure are whether technological availability, regulatory acceptance, ecosystem distribution, and genuine user demand can coexist.

Conclusion: On-chain finance may need to redefine "transparency"

Over the past decade, "openness and transparency" has been one of the most important value propositions of blockchain. However, as stablecoins, RWAs, and institutional assets gradually enter the on-chain realm, the distinction between verifiability and complete openness may become increasingly important. Businesses will not willingly disclose payroll, vendor relationships, client relations, and treasury information just because they are using blockchain; financial institutions will not expose all holdings and trading strategies in real-time merely due to asset tokenization.

Thus, what Grayscale's report truly deserves attention for is not whether ZEC can achieve a 5% market share in the digital currency realm, but rather that it reintroduces a more fundamental question: if blockchains eventually carry an increasing number of real financial activities, who should see what? Zero-knowledge proofs and selective disclosure provide a possible direction—underlying protocols can still verify the legality of transactions without permanently exposing all economic information to the public and can disclose information according to permissions when audit, regulatory, or business needs arise.

As AI enhances the analytical capabilities of public financial data, privacy may no longer be merely an independent track of "privacy coins" in the future but may gradually become a foundational capability that stablecoins, RWAs, 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.