Author: Billy Gao
Compiled by: Jiahuan, ChainCatcher
This is the most powerful cryptographic system in history, yet it can't even keep a secret.
The most ironic thing about the crypto industry is this: we’ve built the most powerful cryptographic system in history, packed with more mathematical formulas than almost anything else, yet the one thing it can’t do is protect the privacy of your funds. Every position you hold, every payment you make, every dollar you transfer is broadcast to the world by default.
We seem to have taken this as normal and accepted it.
But this is precisely the main reason why trillions of dollars that should have gone on-chain have yet to arrive. So let’s return to the fundamentals: how did we get here, what still remains flawed, and the one solution that has finally come to fruition today.
A blockchain is a slow, expensive computer with no owner.
Strip away the narrative built over fifteen years, and blockchain is simply a shared computer, with performance even inferior to the laptop you're using to read this article. That’s its entire essence.
Return to the fundamentals of 2012, the principles that were dismissed as too simple to mention anymore. A blockchain is simply a list of blocks chained together by hashes. Each block contains a payload: transactions, state changes, and so on.
Each block cryptographically points to the previous one, making it impossible for anyone to secretly alter the history without being detected. Anyone can run a verification program to check whether the entire system is valid. Although consensus mechanisms have evolved—from proof of work to proof of stake and beyond—their core premise has never moved an inch.
It is slower, more expensive, and bulkier than your laptop. Its only specialty—and the entire reason for its existence—is that no one can stop you from using it, and no one can deceive you about the results. There are no administrators, and no privileged parties you must ask for permission.
But this trick comes at a high cost. Each node must re-run your computation and permanently store your data. Therefore, the only sensible approach on this machine is to place only those rare items that truly require this feature and justify its cost.
Most things don’t need it, and that’s perfectly normal. In the following discussion, keep this test in mind: Does this thing truly require a computer owned by no one? Because it essentially determines everything that follows.
The "trilemma" is a misdrawn triangle.
The entire industry spent a decade struggling between decentralization, scalability, and security. It largely won that battle, only to discover that the real critical constraints weren’t in that triangle at all.
For years, all discussions revolved around the "trilemma": decentralization, scalability, and security—you could only have two at once, never all three. The Ethereum era was a long debate centered on this. Topics like block size, sharding, Rollups, and Layer 2 consumed the entire field for many years.
Then, quietly and without fanfare, we essentially solved it. Today, block space is cheap, throughput is high, and rollups work. The scaling problem that defined a decade has become a thing of the past in practical application.
Then, the real core issue comes to light. Once scale is no longer the bottleneck, an unsettling truth becomes clear: the constraints keeping capital out of this machine aren’t in the triangle at all. We spent ten years optimizing the wrong three corners.
To find the right angle, put aside the question of "how well does the machine perform?" and ask a more direct and honest one: Who is this really for, and who still can’t use it?
Why only actual funds can truly work
Funds are the only thing where the record on the ledger itself is the asset. Anything else you put on the chain is merely a pointer to something elsewhere.
Following its characteristics, the uses of blockchain almost reveal themselves.
First is access. Anyone, anywhere, can log in to this shared computer and change its state. There are no business hours, and no need to rely on a privileged party (such as a bank, broker, or exchange) to update the ledger. This is immensely valuable for money. Transferring value becomes as straightforward as editing a file.
Second is trust. Why did we originally entrust our money to privileged entities? Because we believed it would be safe there. Blockchain answers the same question with a different mechanism: not trust in an institution, but trust in numbers—where "numbers" has two meanings: mathematics and quantity. As long as there are enough honest participants, each acting in their own economic interest, and the entire system is verified through mathematics, your money is as secure as the network itself—not as secure as any single entity.
But there is a third point, almost never mentioned: funds are the only thing where the ledger entry is the asset itself. A dollar on-chain is just a number, and that number is the dollar—nothing more.
This is why finance has taken root here, while nearly every other attempt has failed. This type of asset, existing purely as ledger entries, is exactly the kind the ledger was built for. The market has already confirmed this: stablecoins have now reached a $300 billion market cap, settling approximately $33 trillion annually, and this growth is no longer driven by retail speculation.
What should be on-chain and what shouldn't
The crypto industry found its killer app, but only used it to serve an extremely narrow segment of the market. It’s too risky for institutions above and meaningless for ordinary people below. It serves only those who are “moderately well-off,” with almost no one else.
Since money is inherently a burden, the next question is: what things related to money truly meet the threshold of "requiring a computer nobody owns"? The failures on both ends precisely bracket the answer.
The underlying assets are those cheap things. You could say anything has value and therefore counts as "finance." But you're always weighing two things: how much something is worth in itself, and how much it costs to run it on the most expensive computer in history.
Social media, personal data, AI context tokens—Web2 has already excelled at these, and they’re essentially free. Moving them on-chain only adds cost without reducing anything. Their individual value is too low to justify the machinery required. Most of the things forced onto the chain in the last cycle failed this test, and the same will hold true in the future.
At the top level, those with massive amounts of capital simply can’t enter. That’s the real tragedy. Honestly, look at who is actively using cryptocurrency—it’s an alarmingly narrow group, let’s call them “the relatively well-off.” They have enough money to not worry about day-to-day survival, but not enough to manage large institutional capital. Beyond a handful of crypto-native funds, that’s essentially the limit.
The capital that should have come—family offices, sovereign funds, large institutions, corporate treasuries—looked at this machine and walked away. Not because they didn’t understand it, but because its operation made no sense to them.
Their list of objections is long, and to be honest, most of it holds true: legal and regulatory uncertainty, custody risks, constant hacking incidents, smart contract vulnerabilities, MEV, the inability to securely self-custody at scale, and counterparty risk at every step. When you add all of that up and weigh it against the modest additional returns, the answer is often not worth it.
To many, the crypto space is a highly volatile, zero-sum arena where everyone is fighting over the same pool of dollars. Honestly, they’re often right.
Thus, the crypto industry is stuck in a narrow band: too strange for capital above, and too trivial for applications below.
But take another look at that list of objections. Most are operational issues, and operational issues can be solved with straightforward measures: audits, insurance, regulated custodians, and time. Strip those away, and the two remaining points cannot be fixed—because they are not implementation flaws, but inherent design attributes.
Public blockchains are permissionless, which places them squarely in a legal gray area. At the same time, public blockchains are transparent, leaving you fully exposed.
Legality and privacy. These are the true missing corner of the old triangle, which only had two angles. Whether one can transcend these two angles is the entire胜负 of the game, and it ultimately comes down to these two flaws.
Defect one: Legality
For a decade, the most honest answer to the question “Is this thing even legal?” has always been “Sort of.” For anyone managing real money, that’s an unacceptable answer. And now, for the first time, that answer is beginning to change.
The first flaw stems directly from the very strength it is built upon. The fact that anyone can do anything is what makes this machine valuable—and what turns it into a regulatory minefield.
Permissionlessness is a double-edged sword: the very feature that lets you transfer funds without needing anyone’s approval also enables others to engage in activities that give the entire industry a reputation as a "fraud haven." For a serious investor, this is a dealbreaker, no matter how good the underlying technology is.
This flaw cannot be fixed by better cryptography—it requires policy solutions. In July 2025, the GENIUS Act became law, providing the first-ever federal framework for stablecoins as core financial payloads. Market structure legislation followed closely behind. Although it has not yet become law, the direction is clear, and the environment for entrepreneurs and investors is already far more favorable than it was two years ago.
The three-headed challenge that once intertwined governance, decentralization, and legal risk has receded to such an extent that running a compliant on-chain business is now just an ordinary business decision.
So the issue of legality is gradually closing itself, to varying degrees. But another flaw is what the entire industry has truly gotten backwards over the past decade.
Defect two: Transparency is a tax
On-chain transparency is not a benefit—it’s a tax. Every position you hold is public, and the network charges you for being seen through MEV and front-running.
This is something everyone has become accustomed to, but should never take for granted. On a public blockchain, your entire financial life is being broadcast. Every holding, every transaction, every transfer — anyone with access to a block explorer can see it in real time. “It’s transparency, it’s a benefit” — we’ve heard this for so long that we no longer notice it’s actually a leak.
And it’s a quantifiable, continuous tax. The moment your order enters the public mempool, anyone can see it and then reverse-trade, front-run, sandwich, or wait to liquidate you.
This is not theoretical. By mid-2025, over $1.8 billion in MEV has been extracted on Ethereum. This value has been directly taken from ordinary users’ transactions simply because those transactions were visible before settlement.
Look at who’s already spending to avoid it. Sophisticated trading desks and funds no longer broadcast to public mempools. They use private relays and order flow auctions specifically to hide their actions before execution.
Smart money is buying privacy piece by piece, because smart money knows that transparency is costing it money. Everyone else is defaulting on paying this tax.
For retail traders, the situation is even worse: every position opened by an ordinary trader on a trading platform, visible to the entire world, results in profits being wasted.
Transparency is marketed as a "level playing field," but the actual effect is the opposite.
Now let’s turn our attention to the capital we truly want. No family office, sovereign fund, or large institution would put its balance sheet on a machine that a competitor can read in real time.
Of course they wouldn't. It makes no sense to let the entire world observe your treasury operations in real time. They need their own private space within this shared computer.
Honestly, everyone needs it. You would never accept a bank posting your bill online, so there’s no reason to accept it here either.
This is why payments and serious transactions have not yet been fully moved on-chain, and why equating privacy with "anonymous coin trading" is somewhat ridiculous.
The greatest irony in the world of cryptography
Encrypted communication has been commonplace for thirty years. Encrypted funds still are not. On a system built entirely on cryptography, this should be a bit embarrassing.
Step back, and this absurdity becomes impossible to ignore. Blockchains are built from cryptographic primitives—hashes, signatures, commitments—all cryptography, end to end.
But what it didn’t do is encrypt your actual activity. We built an entire cathedral of cryptography, yet left the front door—your financial privacy—wide open.
We solved this for communications decades ago. No one finds encrypted communication strange or suspicious—it’s the default setting, and the world continues to function just fine.
The same fundamentals have always been there when it comes to funds, and these cryptographic primitives have been quietly improving over the past decade.
What’s truly missing is performance: how to make it fast enough and cheap enough to reach production grade. This is both a mathematical and a hardware problem. Hardware has now caught up—specialized acceleration hardware has brought the cost of these proofs down to levels that can sustain real-world throughput.
The question has never been "Is this feasible?" but rather "Is it worth the cost?" Now, for the first time, the answer is "Yes."
A valid concern to address
Isn't transparency the key? Proof of reserves, no hidden leverage, verifiable solvency. If privacy means hiding everything, then this statement holds. But privacy doesn't have to mean that.
The strongest argument against on-chain privacy deserves a concrete response. Transparency is load-bearing. It’s how you verify whether a stablecoin is truly backed by sufficient reserves, how you confirm whether a protocol is solvent, and how you catch hidden leverage before it collapses.
It is also a tool used by law enforcement to track stolen funds and by regulators to combat money laundering. Making everything opaque means you lose the auditability that accounted for half its original value, while simultaneously handing criminals a convenient tool.
This is a serious question, but it quietly rests on a false dichotomy: as if your only options are "completely public" or "completely hidden".
Privacy and compliance have never been enemies
You can prove your solvency, KYC compliance, and that you haven’t exceeded limits—without revealing any of your positions. Prove the fact, not the data.
This is the real argument, spelled out clearly: the opposite of public is not hidden. Modern cryptography allows you to prove that a statement is true without revealing the underlying data that makes it true.
You can prove that reserves exceed liabilities without disclosing the details of the reserves. You can prove that an address has passed KYC without revealing its identity. You can prove that a position is within risk limits without exposing the position itself. You can prove that a transaction is clean and not money laundering without disclosing the sender’s full history.
This directly resolves the skepticism. Auditors still receive their assurance. Regulators still get their compliance checks. Law enforcement still has a legal pathway for disclosure. What disappears is only the act of broadcasting everyone’s financial lives—along with every predator lurking within—to the entire world in real time, without distinction. You retain every benefit that transparency was meant to deliver, and the tax is eliminated.
Privacy and compliance have never been at odds. They only appear to be, because the privacy tools we’ve had in the past have been too crude—like mixers that hide transactions from everyone, including law enforcement.
Compliant privacy with a provable disclosure mechanism is the comprehensive solution this entire debate has been missing. It allows regulated institutions and private individuals to use the exact same chain, with everyone revealing only what they must—nothing more.
A pure upgrade
Today’s public blockchains are essentially like a Google Sheet: one side charges you rent, while the other exposes everything you own for strangers to see. The version that can keep your secrets is a pure upgrade—and it’s precisely what will ultimately bring the next trillion dollars on-chain.
Be honest about what most crypto products actually offer today. Strip away the consensus mechanism, and a public blockchain is just a shared Google Sheet that records everyone’s transactions—only slower, more expensive, and readable by every competitor and predator on Earth.
The only real added value it has over an actual Google Sheet is decentralized consensus: ensuring that no one can secretly alter a row. This guarantee is real and valuable. But today, it is the sole source of added value.
Every exchange and every DeFi protocol built on major blockchains is ultimately renting this feature.
With provable compliant privacy, it is no longer just a worse spreadsheet. It becomes something that has no counterpart in the old world: a shared machine that can verify transactions as true without revealing their contents.
We’ve long accepted this model elsewhere: an encrypted email can prove it was delivered without broadcasting its contents to the entire street. There’s no reason funds should be the only exception.
On nearly every dimension that serious capital cares about, "default privacy + provable compliance" is a pure upgrade over the status quo. Same consensus, same settlement—just without the leak.
The common rebuttal here is that today’s crypto community doesn’t seem to want these—they’re here trading, and the current products clearly suit them just fine.
Exactly, that’s the crux. Early adopters are inherently only those who are already served by the current version. They are not the missing market. The missing market—those institutions, those treasuries, those ordinary people who would never expose their bank statements—is sitting on the other side of these two shortcomings.
Close these two flaws, and you’ll get the bridge that ultimately spans the gap, putting a multi-trillion-dollar financial system squarely on the track it was quietly designed for from the very beginning.
This most powerful cryptographic system in history has finally learned how to keep a secret. This will change everything.