Public blockchains and the push for privacy Public blockchains like Ethereum and Solana are open by design. Anyone can create a wallet, submit a transaction, or launch a financial product on a shared digital ledger. Likewise, anyone can read the history of transactions, or initiate their own, on these open systems. Their transparency attracts liquidity, which attracts activity, which attracts more users.
But as blockchains inch into the financial mainstream and institutions begin trading and settling on them, their accessibility risks becoming a competitive liability. Some institutions may be hesitant to embrace open blockchains where they can’t control key factors, like who their counterparties are, and how important information is shared. In other words, they want privacy.
Privacy is nothing new to crypto. In bitcoin’s early days, casual observers incorrectly assumed that all on-chain transactions were completely untraceable. Chainalysis’s work has consistently demonstrated the opposite: using the right tools, blockchains can provide a roadmap for successful criminal investigations, as well as effective compliance regimes. In response, some builders started creating privacy-centric platforms that provided anonymity for transactions.
The institutional desire for privacy is less about anonymity than data protection. Therefore, a new crop of hybrid blockchains, platforms that give their users control over what data is visible, have emerged. They appeal to the institutional desire for privacy without sacrificing key attributes that made blockchains successful in the first place.
The industry’s lack of standardized terms mean these blockchains describe themselves differently. The largest of this cohort, Canton, which explicitly appeals to institutional users, calls itself a “public permissioned” chain because it limits who can access its systems. CoinDesk reports it hosts $6 trillion in institutional assets so far.
Privacy blockchains exist on a spectrum. Some, like Canton, are built from the ground up for institutional users. Others, like Solana , are public blockchains adding features that let users transact privately. And still others, like Zcash, a network that predates crypto’s institutional era, offer privacy features but lack the functionality to host entire financial systems on-chain.
Chainalysis is building solutions that address the unique data challenges of each privacy network.
This blog will break down how each approach works, where they differ, and what they mean for businesses’ compliance efforts.
Approaches to privacy Regardless of a blockchain’s nature, the institutions who use it must meet the same basic compliance burden: They must understand who is doing business with them on-chain. How they can accomplish this varies drastically depending on which blockchain they use. The monitoring techniques that work on one platform won’t necessarily apply to a different chain with a different architecture. There is no single “privacy network compliance” skill set. Instead, there are at least four distinct models, each requiring different tools, different access arrangements, and different analytical approaches.
Sub-transaction privacy: This model shields all details of a transaction — even the existence of the transaction — from public view. The most notable blockchain under this model is Canton. On Canton, only the parties involved in a transaction automatically get a copy of the relevant parts of that transaction. Stakeholders, like compliance teams, partners, and regulators, get data on a need-to-know basis . Consider an on-chain transfer of cash in exchange for a security, a Delivery vs Payment (DvP) transaction. The bank accepting the payment will see the data for the cash move, but nothing about security exchanged; the securities registrar recording asset transfers will see the data for the security’s new owner, but not the cash exchanged. By sharing segmented information only with stakeholders, Canton builds privacy into the chain.
Shielded pools: Shielded pools are places where users can privately move otherwise publicly-viewable assets. They are opt-in features. The longest-standing example of this model is Zcash. It is a public blockchain that has transparent addresses similar to Bitcoin. But Zcash also has privacy pools (the largest being Orchard) within which spender, receiver, and amount are all encrypted. Even the receiver of ZEC in a shielded pool won’t know where the assets came from. To peer under the curtain a user must either 1. Have initiated the transaction or 2. Hold a viewing key. Either way, Zcash was not designed to support much more than sending and receiving value because it does not host smart contracts . While its viewing keys solve the compliance problem, its limited functionality rules it out for many institutions aiming to build more sophisticated financial services and products on-chain.
Regulated institutions have still been able to interact with Zcash because most activity on the network remains transparent, and Chainalysis supports Zcash in the same way it supports Bitcoin for transactions that do not use shielding. When funds do move through shielded pools, only holders of viewing keys can see their activity. But Chainalysis can identify and monitor transfers into, out of, and between those pools in Reactor and KYT , where they appear as “Protocol privacy” exposure for risk-based review.
Encrypted extensions: This model provides selective privacy to users of an otherwise public blockchain. Solana follows this model via its confidential transfers extension. Token issuers can choose to bake confidential transfers into their assets at the time of creation. If they do, then the amount of value being transferred, and the balance of the sender and receiver, are hidden from view – but their identities are transparent. Like with Zcash, auditors who hold a viewing key can decrypt the transaction details. Solana launched confidential transfers in early 2025 but shut it down until June 2026 to patch bugs; it is now back online.
Private smart contracts: A privacy-first model that bakes confidentiality into the very execution of transactions. The most notable user of this model is Aztec, an Ethereum Layer 2. Users perform the computations locally on their device, broadcasting only a zero-knowledge proof that the transaction was valid. Contract state, transaction details, and execution logic are all invisible to outside observers. The only public signals are bridge deposits and withdrawals on Ethereum Layer 1 — the entry and exit points. The protocol has no built-in auditor key or backdoor for third-party access. But Aztec’s “programmable privacy” model allows application developers to write smart contract logic requiring users to selectively disclose transaction data — for example, to a compliance provider — as a condition of transacting. Without such conditions, funds inside Aztec are untraceable without the holder’s cooperation. If funds enter Aztec, they are untraceable without the holder’s cooperation inside the protocol. The network launched its alpha mainnet in early 2026 and is still nascent — roughly one transaction per second — but its architecture represents the most opaque privacy model of the four discussed here.
