Tiger Research: Why Financial Institutions Prefer Selective Privacy

This article is written byTiger ResearchOne of the defining narratives of 2026 will be "privacy." As institutional participants dominate the cryptocurrency space, privacy has become a key technological feature in bridging blockchain and real-world commerce.

• The core advantage of blockchain—transparency—may expose corporate trade secrets and investment strategies, posing significant risks to businesses.
• Privacy models that offer complete anonymity, such as Monero, do not support KYC or AML, making them unsuitable for regulated institutions.
• Financial institutions require selective privacy, which can protect transaction data while remaining compatible with regulatory compliance.
• Financial institutions must determine how to connect with open Web3 markets to achieve expansion.

One of the core characteristics of blockchain is transparency. Anyone can inspect transactions on the chain in real time, including who sent the funds, to whom they were sent, the amount involved, and when they were sent.

However, from an institutional perspective, this transparency brings obvious issues. Imagine a scenario where the market can observe exactly how much NVIDIA transfers to Samsung Electronics, or precisely when a hedge fund deploys capital. This visibility would fundamentally alter competitive dynamics.

An individual's tolerance level for information disclosure differs from what businesses and financial institutions can accept. Transaction histories of companies and the timing of institutional investments constitute highly sensitive information.

Therefore, it is unrealistic to expect institutions to operate on a blockchain where all activities are fully exposed. For these participants, a system without privacy is more of an abstract ideal with limited practical application than a useful infrastructure.

Blockchain privacy is typically divided into two categories:

• Complete anonymous privacy
• Selective Privacy

The key difference lies in whether the information can be disclosed when the other party needs to verify it.

2.1. Complete Anonymous Privacy

Complete anonymous privacy, in simple terms, is about hiding everything.

The sender, receiver, and transaction amount are all hidden. This model directly contrasts with traditional blockchains, which prioritize transparency by default.

The primary goal of a fully anonymous system is to prevent third-party surveillance. Rather than enabling selective disclosure, they aim to completely prevent external observers from extracting meaningful information.

Source:Tiger Research

The image above shows a Monero transaction record, a representative example of complete anonymity and privacy. Unlike transparent blockchains, details such as the transfer amount and transaction counterparties are not visible.

Two characteristics explain why this model is considered fully anonymous:

• Total Output:The ledger does not display specific numbers, but instead shows values as "confidential." Transactions are recorded, but their contents cannot be deciphered.
• Ring signature size:Although a single sender initiates the transaction, the ledger mixes it with multiple decoys, making it appear as if multiple parties are sending funds simultaneously.

These mechanisms ensure that transaction data remains opaque to all external observers, without exception.

2.2. Selective Privacy

Selective privacy operates based on different assumptions. Transactions are public by default, but users can choose to make specific transactions private by using designated privacy-enabled addresses.

Zcash provides a clear example. When initiating a transaction, users can choose between two address types:

• Transparent Address:All transaction details are publicly visible, similar to Bitcoin.
• Filtered address:Transaction details are encrypted and hidden.

Source:Tiger Research

The figure above illustrates which elements Zcash can encrypt when using shielded addresses. Transactions sent to shielded addresses are recorded on the blockchain, but their contents are stored in an encrypted form.

Although the existence of the transaction is still visible, the following information is hidden:

• Address Type:Use screened (Z) addresses instead of transparent (T) addresses.
• Transaction history:The ledger confirms that a transaction has occurred.
• Amount, Sender, Recipient:All are encrypted and cannot be observed from the outside.
• View permissions:Only parties granted the viewing key can inspect the transaction details.

This is the core of selective privacy.Transactions are stored on the blockchain, but users control who can view their contents. When necessary, users can share viewing keys to prove transaction details to a specific party, while all other third parties remain unable to access the information.

Most financial institutions have Know Your Customer (KYC) and Anti-Money Laundering (AML) obligations for each transaction. They must retain transaction data internally and respond promptly to requests from regulators or supervisory authorities.

However, in an environment built upon complete anonymity and privacy, all transaction data is irreversibly hidden. Since the information cannot be accessed or disclosed under any circumstances, institutions are structurally unable to fulfill their compliance obligations.

A representative example is the Canton Network, which has been adopted by the Depository Trust & Clearing Corporation (DTCC) and is currently being used.More than 400 companiesFor institutional use. In contrast, although Zcash is also a selective privacy project, its adoption by institutions in the real world is quite limited.

What is the reason for this difference?

Source:Tiger Research

Zcash provides selective privacy, but users cannot choose which specific information to disclose. Instead, they must decide whether to disclose the entire transaction.

For example, in a transaction where "A sends 100 dollars to B," Zcash does not allow hiding only the amount. The transaction itself must be fully hidden or fully disclosed.

In institutional transactions, different parties require different information. Not all participants need access to all data within a single transaction. However, Zcash's structure forces a binary choice between full disclosure and complete privacy, making it unsuitable for institutional transaction workflows.

In contrast, Canton allows transaction information to be split into individual components for management. For example, if a regulator only requires the transaction amount between A and B, Canton enables institutions to provide only that specific information. This feature is achieved through Daml, the smart contract language used by the Canton Network.

Other reasons why institutions adopt Canton were mentioned previously.Canton ResearchThere is a more detailed introduction in the middle.

Privacy blockchains evolve as demands change.

Early projects like Monero aimed to protect personal anonymity. However, as financial institutions and businesses began entering the blockchain environment, the meaning of privacy has shifted.

Privacy is no longer defined as making transactions invisible to everyone. Instead, the core objective has shifted to protecting transactions while still meeting regulatory requirements.

This shift explains why selective privacy models like the Canton Network have gained attention. Institutions need more than just privacy technologies; they require infrastructure designed to match the workflows of real-world financial transactions.

In response to these demands, more institution-focused privacy initiatives continue to emerge. Looking ahead, the key differentiating factor will be how effectively privacy technologies can be applied in real transaction environments.

Alternative forms of privacy that contradict the current institutional-driven trends may emerge. However, in the short term, privacy blockchains may continue to develop around institutional transactions.

Source:Tiger Research