This paper examines the growing role of privacy-enhancing technologies in the crypto industry, and the need to balance compliance with innovation.
Overview
This Insights Paper examines the need to balance compliance objectives with the growing role of privacy-enhancing technologies (PETs) in the crypto industry. Based on discussions from a July 2025 roundtable convened by the Home Office and National Economic Crime Centre, the paper outlines the origin of user demand for privacy, solutions that integrate compliance and privacy, and challenges that still persist.
The following findings were identified from the roundtable:
- Increased user demand for privacy stems from four possible occurrences: illicit actors targeting individual(s) believed to be attributed to cryptoasset addresses via hacks to siphon funds; overuse of data mining and surveillance by companies; the need for privacy in business operations that involve cryptoassets; and reducing the risk that individuals will be targeted by an authoritarian state or criminal organisation.
- Solutions that combine compliance with privacy already exist. ZK Passports, confidential stablecoins and privacy pools can support an ecosystem built for user privacy while not hindering law enforcement investigations.
- Illicit actors succeed by taking advantage of innovation; the same level of success can occur for those trying to restrict activity. Collaboration between regulators, law enforcement and PETs developers should be fostered to understand how the technology can be designed to improve operations.
- The Mutual Legal Assistance process is not fit for purpose when considering the speed of cryptoasset transactions. Some participants identified that it is more talked about than used when cases involve cryptoassets. Therefore, solutions are needed to streamline communication.
This paper provides actionable insights for policymakers, law enforcement and industry leaders to navigate the intersection of privacy, innovation and regulation in the cryptoasset sector.
