In brief
- A RUSI paper based on a public-private roundtable discussion has called for greater collaboration between privacy tool developers and law enforcement.
- Participants at the roundtable repeatedly stressed that banning privacy solutions, such as privacy pools and ZK-proofs, would simply make illicit activity harder to detect.
- The paper highlights several legitimate uses for privacy solutions, including company confidentiality and protection for potential wrench attacks.
A report from the world’s oldest defense and security think tank has warned against banning blockchain-based privacy tools, arguing that blanket prohibition would merely result in bad actors using noncompliant services.
In a paper titled, ‘Privacy-Enhancing Technologies in the Crypto Industry,’ the London-based Royal United Services Institute (RUSI) highlighted a “need to balance compliance objectives” with the growing role of privacy-related protocols and platforms in the cryptocurrency sector.
It observed that growing demand for privacy solutions currently derives from four legitimate sources. They include individuals and entities wanting to avoid targeting by hackers, privacy concerns in the face of AI-related data mining by companies; privacy concerns of cryptocurrency businesses; and reducing the risk that high-net-worth and/or prominent individuals will be targeted by criminals or authoritarian governments.
Based on roundtable discussions convened by the UK Home Office and National Economic Crime Centre in July 2025, the report highlights several blockchain-based privacy technologies, including zero-knowledge proofs, confidential stablecoins and privacy pools.
While acknowledging that illicit actors are naturally attracted to privacy tools and “succeed by taking advantage of innovation,” the paper reports that roundtable participants—which included industry players as well as regulators and enforcement agencies—made the point “several times” that there was a “need to not ban” privacy solutions.
“The participants highlighted that banning the technology would result in illicit actors using unregulated services,” the report reads. “As a result, law enforcement would have fewer entities to reach out to and request information from, subsequently limiting options for further investigations.”
Instead, the roundtable participants agreed on the value of expanding collaboration between officials and providers, and of using privacy-enhancing technologies to aid law enforcement practices and “improve detection of illicit activity.”
Crypto privacy and compliance
The report’s author, RUSI Associate Fellow Allison Owen, told Decrypt that it’s important for policymakers and enforcement agencies to work together with developers to ensure that privacy solutions integrate compliance features.
“From the roundtable, it is clear that the participating companies that integrate PETs and compliance features are willing to engage with the public sector,” she said.
While accepting that there will always be individuals with bad intentions, Owen emphasized that this shouldn’t “cloud the possibility of responsible actors using the technology to benefit society.”
Indeed, the report focuses almost exclusively on the legitimate uses of privacy solutions, highlighting their utility in the context of increasingly frequent “$5 wrench attacks,” which in 2025 claimed record losses of $41 million.
It also discusses other drivers of usage, such as cryptocurrency firms wanting to keep crypto-based salaries confidential, as well as wanting to keep their business practices and fund flows private from competitors.
Based on such practices, the roundtable’s participants generally believed that privacy-enhancing mechanisms “will continue to grow,” with zero-knowledge proofs in particular being integrated increasingly into business practices by the end of this year.
However, despite this optimism Owen herself told Decrypt that “extensive” collaboration between developers and the public sector needs to happen before trust in crypto-related privacy solutions reaches a critical mass.
“Building trust through the integration of compliance features will ultimately expand the use of the technology,” she said. “The roundtable reflects a step forward in driving these discussions around how to balance compliance and user privacy.”
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Source: https://decrypt.co/359410/ban-on-crypto-privacy-tools-would-be-counterproductive-uk-think-tank
