Grayscale Research says financial privacy is not a niche add-on to money, but a core part of how money works. In a report on Zcash, the firm argues that a new wave of public attention may be forming around the issue as stablecoins and blockchain applications spread and artificial intelligence opens up new forms of financial surveillance.
The report was written by Michael Zhao and translated by Foresight News. Grayscale’s central claim is that Zcash, a decentralized digital currency with established privacy technology, may be positioned to capture demand if users begin treating private digital money as a distinct need rather than a side feature of transparent crypto assets.
A third wave of attention to financial privacy
The report starts from a simple point: physical cash has privacy by default. Traditional finance, built around intermediaries such as banks, has also preserved some degree of practical confidentiality by limiting who can freely access financial records. Even law enforcement agencies, the report notes, generally need a court order to obtain personal financial data.
Grayscale links earlier periods of public concern over financial privacy to changes in technology and regulation. In the 1970s, the digitization of financial records and the introduction of the Bank Secrecy Act brought the issue into sharper focus. In the late 1990s and early 2000s, the spread of the internet and online banking, along with the Patriot Act, pushed financial privacy back into the spotlight and helped drive broader use of encryption and two-factor authentication tools.
Grayscale believes the market may now be approaching a third phase. This time, the catalysts are the growth of stablecoins and blockchain-based applications, along with AI-driven methods of monitoring financial behavior. The report says several high-frequency indicators suggest public attention to the topic has already started to rise.
Privacy as a standalone product category
On public blockchains, account balances, counterparties, and transaction histories remain permanently visible. Grayscale argues that even if users rely on pseudonymous addresses, exchanges, counterparties, wallet behavior, and blockchain analytics tools can gradually connect those dots and reconstruct financial activity. In practice, the information exposed on-chain often goes well beyond what users expect.
The report says demand for privacy is broader than a small group seeking total anonymity. Individuals may not want their balances and spending histories exposed by default. Businesses may want to keep supplier information, payroll, treasury flows, and customer relationships confidential. Institutions may not want their wallet structures and transaction patterns mapped in real time.
That leaves privacy as a common requirement across economic activity, not simply a niche preference. Grayscale also says this area has long faced a distribution problem inside crypto. Stronger privacy features can create extra friction for exchange support, wallet integration, and market access. In that sense, privacy in crypto is not only a technical matter. It also carries commercial trade-offs.
Different ways to build on-chain privacy
The report divides crypto privacy systems into several groups, based on what they actually conceal.
- Mixing-based systems: These operate on transparent chains such as Bitcoin. Grayscale cites CoinJoin, CashFusion on Bitcoin Cash, and Dash’s PrivateSend. They can make tracing harder, but the underlying ledger remains public.
- Confidential transaction systems: Litecoin’s MWEB is used as an example. It can hide transaction amounts and provide a base layer of structural privacy, though Grayscale says it still falls short of fully shielded systems.
- Default-private blockchains: Monero is the main example. Privacy is turned on by default and does not require a user to opt in.
- Shielded transaction systems: Zcash is Grayscale’s example here. The network can verify transaction validity without exposing the sender, recipient, or amount.
Grayscale says Zcash occupies a distinct position because it is a base-layer blockchain with optional privacy. Its shielded transfers hide sender, receiver, and amount at the transaction layer itself, which the report contrasts with privacy overlays built on top of otherwise transparent networks.
What Zcash is and how it works
Zcash is a public blockchain for peer-to-peer value transfer. It has a 21 million token supply cap, uses a proof-of-work security model, and shares many traits with Bitcoin. The key difference is that users can choose whether to use shielded transfers instead of having every transaction detail exposed by default.
The network supports two types of transactions:
- Transparent transactions: Fully visible on-chain and broadly similar to Bitcoin transfers.
- Shielded transactions: Validity can be checked without revealing sender, recipient, or amount to the public.
In practical terms, Grayscale says Zcash allows a transaction to be verified without putting the full record in public view. The network does this with zero-knowledge proofs and a shielded pool. As long as funds stay inside that pool, on-chain information leakage can be minimized. The report adds that zero-knowledge proofs have uses beyond privacy, including blockchain scaling.
Zcash also supports selective disclosure. Through viewing keys, users can give designated third parties permission to inspect shielded transaction data when needed. Grayscale presents this as an important distinction: shielded transfers are private to the public, but they are not an absolute black box if a user chooses to disclose information.
From a 2016 launch to a new phase of protocol development
Zcash launched in 2016. Grayscale says the project is often viewed as an older crypto network, but argues that its original goal was broader than building a private transfer tool. From the start, the aim was to put zero-knowledge cryptography into a digital cash system.
The report describes that design as unusually ambitious for its time. Zcash borrowed Bitcoin’s monetary model while trying to bring privacy directly into a public blockchain. It was one of the earlier projects to build privacy-focused digital cash at the base protocol layer rather than treating privacy as a wallet feature or an add-on service.
Grayscale also says the early vision was ahead of the product infrastructure needed to support it. In its early years, shielded transfers were computationally heavy and much less convenient than transparent ones. Several major upgrades changed that over time.
- Sapling (2018): This upgrade sharply reduced proof generation time and memory use, making shielded transactions practical. Grayscale says a shielded transfer could then be generated in seconds and with as little as 40MB of memory, helping drive adoption.
- Orchard / NU5 (2022): This brought a cryptographic overhaul, introduced the Orchard shielded protocol and Halo2, and removed the need for a trusted setup in the new shielded pool.
- Ironwood (2026): This addressed an Orchard circuit vulnerability, created a new shielded pool, and removed a theoretical token forgery risk, according to the report.
- Unified addresses and wallet improvements: These changes simplified interaction by letting users work with transparent and shielded receiving modes without juggling multiple address formats.
For Grayscale, the key question is no longer whether private transfers can be done at all. The challenge is whether they can be used at scale and without high friction. The report says years of work to reduce those frictions are finally starting to show results.
Wallets and infrastructure as the missing pieces
The report places heavy emphasis on the wallet layer. It describes Zodl, formerly Zashi, as more than a storage tool and instead as an entry point built around shielded-first interaction. According to Grayscale, the product includes swaps based on NEAR Intents, CrossPay for cross-asset transfers, and support for cold storage of shielded balances.
The point of those features, the report says, is to reduce the number of moments when a user has to leave the shielded pool. Depositing, paying, and exchanging into other assets can remain inside a crypto-native workflow as much as possible. Grayscale says Zcash’s biggest historical bottleneck was not whether private transaction technology was feasible, but whether users could remain protected across the full transaction flow.
Grayscale also points to broader ecosystem progress. In April 2026, Foundry announced a U.S.-based Zcash mining pool aimed at institutions and publicly listed company miners. The report says that move does not directly increase the number of shielded wallet users, but it does signal a more mature ecosystem, more industrial-grade support, and rising institutional familiarity with the chain.
The report also mentions fee and mempool policy adjustments that helped ease congestion caused by spam transactions and improved network stability under heavier load. Grayscale does not frame those changes as the heart of the investment case, but says they help move the protocol from theoretical privacy toward usable privacy.
What comes next for the network
Grayscale says the next stage for Zcash depends on whether it can move from proving that privacy is possible to showing that privacy can be deployed at scale. The report singles out several areas to watch.
- Tachyon: Described as the most important scaling proposal, aimed at lowering the cost of shielded transactions and the burden of synchronization.
- Crosslink: Focused on transaction finality and network reliability. The report says it does not fully replace the existing proof-of-work model, but strengthens settlement assurances.
- Shielded assets: A feature that would allow assets beyond native ZEC to use Zcash’s privacy system. If revived and deployed, it would extend shielded functionality to more assets and applications.
In Grayscale’s view, Zcash’s future depends not only on privacy itself, but also on the network’s broader resilience and operating reliability.
How Grayscale values ZEC
As of July 2026, Grayscale says the broader crypto market is assigning very little value to privacy. The firm groups assets used as “digital money” into a cryptocurrency category that currently contains 15 assets with a combined market capitalization of $1.4 trillion. Bitcoin accounts for about 90% of that total, according to the report.
Within that framework, ZEC has a market capitalization of about $8 billion, equal to roughly 0.6% of the digital money category. Grayscale says that if ZEC were to reach a 5% share of that segment, its market capitalization would rise 9x.
The report says today’s market pricing reflects a dominant assumption: privacy is a marginal use case with limited demand and does not deserve a valuation premium. Grayscale argues that this may change if privacy becomes more valuable in an environment of tighter monitoring, stricter compliance constraints, and more frequent financial censorship. In that case, a 0.6% share would look less like equilibrium and more like an underpriced option on future demand.
To support that view, Grayscale points to on-chain metrics. As of July 20, shielded transactions accounted for about 90% of all Zcash transactions. About 4.2 million ZEC, or 25% of circulating supply, sat in the shielded pool, which the report says was a record high. For Grayscale, those figures show that privacy is not merely a narrative. It already appears in observable on-chain behavior.
The report’s argument is that Zcash does not need explosive growth right now to justify upside. What it needs is a market reassessment of privacy’s future value. If investors begin to view privacy as a feature that deserves some premium inside crypto monetary networks, Grayscale says ZEC’s current valuation could look conservative. At present, the market still treats privacy as optional rather than fundamental.
Risks and other considerations
Regulatory risk
Grayscale says Zcash’s regulatory risk does not come only from offering privacy features. It also depends on whether regulators and service providers accept its selective disclosure tools as sufficient for compliance.
Compared with privacy systems that offer no disclosure path at all, Zcash’s viewing keys provide a clearer compliance route, the report says. A full viewing key can be shared with a designated party to reveal incoming shielded transaction information, recipient addresses for ordinary shielded transfers, amounts, and memos. That disclosure is permissioned, not a default form of chain-wide traceability.
At the same time, global anti-money-laundering rules and the European Union’s MiCA framework continue to require virtual asset service providers to carry out customer due diligence, keep records, report suspicious activity, and comply with travel rule obligations. Grayscale says viewing keys can reduce support risk, but cannot fully remove the chance that exchanges or custodians decline to support shielded transactions for operational or policy reasons.
Legacy trusted setup and older shielded pools
One long-running source of debate around Zcash has been the trusted setup used in the earlier Sprout and Sapling shielded protocols. The report says that changed with NU5, which introduced Orchard and Halo proof systems and removed the need for a trusted setup in the new Orchard pool.
Still, the report notes that a soundness vulnerability was discovered in the original Orchard circuit in 2026. In theory, that could have enabled undetectable token forgery inside the pool. The network addressed the issue in NU6.2, and Ironwood, also referred to as NU6.3, introduced a new independent shielded pool. New assets can no longer enter the old Orchard pool, and assets leaving it must pass through Zcash’s validation and accounting mechanism. Grayscale says those changes restored independent verifiability of circulating supply and materially improved the cryptographic outlook.
The remaining issue is that the old pool still exists and historical funds remain there. The report says that risk should decay over time, though it still matters when comparing older and newer protocol versions.
Quantum computing risk
Grayscale says quantum computing is a long-range risk facing most public blockchains, not just Zcash. Transparent funds and shielded funds face different quantum threat paths because different cryptographic components are exposed on-chain.
Electric Coin Company, the long-time developer behind Zcash, has already put quantum resistance on its roadmap. The report says that makes the issue more than a purely theoretical one. Even so, for investment analysis it remains a longer-dated topic, while near- and medium-term questions center more on usability, ecosystem rollout, and market structure.
Execution risk
Zcash has relied on a series of major protocol upgrades to improve usability, security, and scalability. Grayscale says that creates two kinds of execution risk.
First, the roadmap itself is difficult. Tachyon and Crosslink are major engineering efforts rather than small parameter changes. Second, upgrades require coordination across engineers, wallet developers, infrastructure providers, and the broader ecosystem. Grayscale says the Zcash improvement proposal process is well documented, which it views as a strength, but it also notes that the investment case still depends in part on sustained delivery quality and continued coordination across participants.
Grayscale’s bottom line
The report closes by arguing that privacy has always been an important property of useful money, even if the digital era has made that easier to forget. Zcash was built to address what Grayscale calls an inherent weakness of public blockchains: transactions are easy to verify, but difficult to keep private. After years of technical development, the firm sees it as one of the clearest attempts to fill that gap.
Grayscale does not claim that private digital money will certainly become a mainstream category. It says that question is still open. Its view instead is that current market pricing leaves very little room for the possibility that privacy becomes much more valuable over time. In that framework, the opportunity is not that Zcash replaces Bitcoin, but that the value of private digital money remains underrecognized by the market.