Privacy tokens have bucked the trend to skyrocket in price and popularity during the recent market downturn, but most of the discussion has focused on consumer-facing projects like Zcash.
At the same time, banks and financial institutions have been exploring zero-knowledge (ZK) systems that enable private transaction flows on blockchain, a technology known for its transparency and immutability.
said Alex Gluchowski, CEO of Matter Labs. “There’s cypherpunk privacy, which is account-level privacy, and then there’s institutional privacy, which is system-level privacy. Institutions need full visibility into their own flows while keeping data private from others.”
Gurkowski first encountered Bitcoin in 2014 while working in the startup world, but shifted his focus to the early coin offerings, when Ethereum’s smart contracts enabled new use cases. Scalability issues, specifically ZK tolerance issues, drew him to building Matter Labs, the developer of the Ethereum Layer 2 network ZKsync.
As of early November, more than 140 companies had about $137 billion in crypto assets on their balance sheets, according to CoinGecko. However, the next step for financial institutions to move payments and settlement flows to public blockchains will only occur when there is a layer of privacy that can be trusted due to confidentiality obligations, Glukowski told Cointelegraph.
Consumer growth stagnates, but privacy opens doors for institutions
The recent bullish cycle in cryptocurrencies has highlighted a long period of speculation driven by trends that have little connection to real-world practicalities.
“For a long time, we had this weird obsession with unproductive assets in cryptocurrencies, and that was clearly not sustainable,” Glukowski said, adding that the consumer side of crypto growth has plateaued.
Meme coins are a good example. These are pure speculation chips in the casino. There is no substance behind them other than this cultural element. ”
Privacy differs from that pattern because it plays a direct functional role in the operation of the financial system. It was not fully considered in earlier cycles due to regulatory pressures. Privacy Coin was delisted from exchanges and the US government sanctioned Tornado Cash.
However, that sentiment has reversed since the current U.S. government has adopted a more selective approach that distinguishes privacy as a technological capability from uses related to illicit finance.
“It’s been like night and day. Before, no one wanted to touch cryptocurrencies. It was a taboo topic. Now the attitude is, ‘We need to embrace this technology or we’ll lose the competition,'” Glukowski said.
While the new focus on Zcash (ZEC) is most visible, the more important factor is due to institutional requirements, he said. Banks, asset managers, and corporations cannot settle transactions on a transparent public ledger without exposing their internal flows, counterparty details, or financial operations to the public ledger.
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According to Glukowski, this is the dynamic behind the new focus on privacy within the Ethereum ecosystem. It is framed as a system-level requirement that allows organizations to transact on shared infrastructure while maintaining full internal visibility and control.
Solving privacy trade-offs in the Ethereum ecosystem
The privacy that institutions require is not the same model that consumers use. Instead of hiding individual addresses, banks and businesses need a private execution environment where they can see all transactions under their control, invisible to the outside world.
When sensitive payment data must be shared with external validators or third-party infrastructure, privacy becomes a contractual arrangement rather than an encryption guarantee.
“Indestructible privacy is only possible when data never leaves a device under your control,” Glukowski said. “If you share it with others and sign an NDA, this is no longer incorruptible. It’s just a promise.”
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In a previous enterprise blockchain experiment, we ran into this exact issue. Financial institutions deployed private chains using frameworks like Hyperledger Fabric and Corda to keep data internal, but their networks remained disconnected from the broader liquidity and payments infrastructure formed around public blockchains.
“If you build a completely private chain, it won’t be connected to anything,” Glukowski said. “This is a slightly improved version of the database, but it does not provide connectivity to public capital markets.”
He argued that the current model in the Ethereum ecosystem seeks to resolve that tradeoff. The combination of locally operated private chains and ZK proofs allows financial institutions to prove to the public network that their systems are working correctly while keeping transaction data internally. Although the public chain does not verify transaction details, it can ensure that no rules are violated.
Institutional privacy layers are starting to materialize
According to data released by Nansen in early November, ZKsync led the industry in seven-day fee growth. Glukowski attributed this increase not to retail speculation, but to activity following the release of new tokenomics and staking proposals.
“We published a new tokenomics proposal for the ZK token, and interest has since skyrocketed,” Glukowski said. “There was a lot of movement in the ZKsync Era, with token prices rising and volumes increasing. We also announced the implementation of pilot staking around the same time, and many people are currently considering it.”
While the use cases for consumer cryptocurrencies continue to grow, Glukowski argued that the next wave of scale will be at institutions that cannot operate on a transparent ledger. Privacy is emerging as an operational requirement for participating in shared payments infrastructures.
ZKsync is now positioned as a network of chains containing systems operated by financial companies in a controlled environment, rather than a single rollup.
Some are already running in testing, and Glukowski said the first production deployment is expected by the end of the year.
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