The crypto-focused investment arm of Andreessen Horowitz, a16z Crypto, has suggested that modern cryptographic tools like zero-knowledge (ZK) proofs can protect user privacy while still enabling law enforcement to target bad actors.
In a report released Tuesday, a16z Crypto policy partner Aiden Slaven and regulatory counsel David Sverdlov explained that ZK-proofs— which validate the authenticity of data without revealing sensitive details—have “greatest potential” for tracing the source of funds without publicly exposing private information.
The report comes just two weeks after Roman Storm, co-founder of the crypto mixing service Tornado Cash, was found guilty of conspiracy related to operating an unlicensed money-transmitting business. Tornado Cash allows users to obscure the origin and destination of cryptocurrency, a feature that prosecutors argued can be used to launder illicit funds.
Slaven and Sverdlov said ZK-proofs could help strike a balance between privacy and compliance: “If users can provide such proofs when converting crypto to fiat, cash-out points can have reasonable assurance that the funds are not tied to criminal activity, while users maintain privacy over their on-chain transactions.”
ZK-proofs offer a broad range of applications for protecting privacy
Slaven and Sverdlov also noted that ZK-proofs extend beyond finance and could be applied to everyday tasks, such as verifying one’s citizenship.
“With a zero-knowledge proof, an individual could confirm this information to another party without revealing a driver’s license, passport, birth certificate, or any other personal document,” they explained.
“A zero-knowledge proof allows that fact to be confirmed without exposing the specific or additional information — whether address, birthdate, or indirect password hints — that could compromise privacy.”
On August 4, U.S. Securities and Exchange Commission Commissioner Hester Peirce expressed a similar view at the Science of Blockchain Conference, emphasizing the importance of protecting privacy-enhancing technologies.
Privacy technology is poised for mainstream adoption
Critics often cite scalability as a challenge for cryptographic privacy technologies, but Slaven and Sverdlov note that advances—such as reduced computational overhead—are making them increasingly practical for large-scale use.
“Cryptographers, engineers, and entrepreneurs are continuously improving the scalability and usability of zero-knowledge proofs, making them a powerful tool for supporting law enforcement needs while safeguarding individual privacy,” they said.
The U.S. government’s July crypto report highlighted ZK-proofs as a means to protect user privacy while still enabling compliance checks. Meanwhile, JPMorgan’s private blockchain, Nexus, has adopted the technology for tokenized cash settlements and interbank messaging.
Additional cryptographic privacy technologies to consider
Beyond ZK-proofs, Slaven and Sverdlov highlighted several other cryptographic technologies worth exploring. One example is homomorphic encryption, which allows certain data—like numerical values—to be used in computations without exposing other private information, such as names.
Other approaches include multiparty computation, enabling multiple parties to perform calculations collaboratively without revealing their private data, and differential privacy, which ensures that aggregated data—collected through methods like surveys—cannot be traced back to individual participants.
“Throughout history, new technologies—from the telegraph and telephone to the internet—have consistently raised concerns about the potential erosion of privacy,” Slaven and Sverdlov said.
“Blockchains have proven no different, and privacy on blockchains is often misunderstood as either creating a dangerous level of transparency or a haven for crime.”
