Don't believe the impossible triangle myth: privacy is the biggest pain point in the crypto industry

The true bottleneck of blockchain is not scalability, but transparency that causes institutional capital to hesitate. Proven privacy will open the path for trillions of dollars to be onboarded. This article is compiled from Billy Gao's analysis.
(Background: Vitalik's major announcement: the "Impossible Triangle" of blockchain has been cracked; PeerDAS and ZK-EVM solve Ethereum's throughput and security issues)
(Additional background: "Crypto Punk" Monero's privacy upgrade: FCMP++, the unfinished digital cash revolution, and the privacy defense in the quantum era)

Table of Contents

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• The essence of blockchain: slow, costly,无人电脑
• The dilemma myth: capital is the core payload
• Institutional capital collapse: privacy and compliance double barriers
• Legal breakthrough: GENIUS Act implementation unlocks
• Transparency tax: $1.8 billion in MEV extracted
• Cryptography irony: open doors privacy vulnerabilities

This most powerful cryptographic system in history can't even keep a secret.

Regarding the crypto industry, the most ironic part is: we have built the most advanced cryptographic system in history, packed with mathematical formulas almost more than anything else, but the only thing it cannot do is protect your fund privacy. Every position you hold, every payment you operate, every dollar you transfer—by default—are broadcast to the world.

It seems we have already accepted and normalized this.

But this is precisely the main reason why trillions of dollars that should be on-chain have yet to enter.

So, let’s go back to the fundamentals: how did we get here, what flaws still remain, and what is the only solution that is finally being implemented now.

Removing the narrative layers of the past fifteen years, blockchain is essentially a shared computer, whose performance is even inferior to the laptop you’re using to read this article. That’s its entire essence.

Going back to the basic principles of 2012, those principles that are no longer mentioned because they sound too simple. Blockchain is a list of blocks linked by hashes. Each block contains payloads: transactions, state changes, etc.

Each block cryptographically points to the previous one, so no one can secretly tamper with history without detection. Anyone can run verification programs to validate the entire system. Although consensus mechanisms have evolved—from proof of work, proof of stake, to future new mechanisms—the core premise has never shifted.

It’s slower, more expensive, and more cumbersome than your laptop. Its only unique skill, and the reason for its existence, is that no one can stop you from using it, and no one can deceive you on the outcome. There are no administrators, no privileged parties you need to ask for permission.

But this skill comes at a high cost. Each node must re-run your computations and permanently store your data. So, the only rational approach on this machine is to store only those few things that truly require this feature and are worth the cost.

Most things don’t need it—that’s normal. In the upcoming discussion, remember this test: does this thing really need a无人电脑? Because that fundamentally determines everything that follows.

The entire industry has spent ten years fighting between decentralization, modular scalability, and security. It has basically won this battle but found that the real constraints are not in that triangle.

The essence of blockchain: slow, costly,无人电脑

For years, all discussions revolved around the "impossible triangle": decentralization, scalability, security—you can only have two at the same time, never all three. The Ethereum era was a long debate around this. Block size, sharding, Rollups, Layer 2—these topics consumed many years of the field.

Then, quietly, we basically solved it. Today, block space is cheap, throughput is high, and Rollups are operational. The scalability problem defined for a decade has become a thing of the past at the application layer.

Next, the real core issue surfaces. Once scale is no longer a bottleneck, a disturbing fact becomes clear: the real constraint that keeps funds off this machine is not in that triangle. We spent ten years optimizing the wrong corner.

To find the right corner, we need to set aside "machine performance" and ask a more direct, honest question: who is this serving, and who still cannot use it?

Funds are the only thing where "the ledger record itself is an asset." Everything else you put on-chain is just a pointer elsewhere.

Following its characteristics, the answer to what blockchain is good for almost reveals itself.

First is access. Anyone, anywhere, can log into this shared computer and change its state. No business hours, no need to ask a privileged entity (bank, broker, exchange) to update the ledger. For funds, this value is enormous. Transferring value becomes as direct as editing a file.

Second is trust. Why did we initially entrust money to privileged entities? Because we believed it was safe there. Blockchain answers the same question differently: not trust in an institution, but trust in digital—where "digital" has two meanings: mathematical and quantitative. As long as enough honest participants are involved, motivated by economic incentives, and the system is verified mathematically, your money and the network are as secure as each other, not just like trusting a single entity.

But there’s a third point, almost nobody mentions. Funds are the only ledger record that is also the asset itself. One dollar on-chain is just a number, and that number is that dollar—nothing more.

This is why finance can root here, while almost all other attempts have failed. Assets existing purely as ledger entries are exactly what the ledger was built for. The market has already proven this: stablecoins now amount to 300 billion USD, settling about 33 trillion USD annually, and this growth is no longer driven by retail speculation.

The crypto industry has found its killer app, but it only serves a narrow slice of the market. For the upper-tier institutions, the risk is too high; for ordinary people below, it’s meaningless. It only serves those "relatively well-off," almost no one else.

The dilemma myth: capital is the core payload

Since capital is the inherent payload, the next question is: which money-related things truly meet the threshold of "needing a无人电脑"? The failures on both ends just squeeze the answer into the middle.

The bottom layer is those cheap things. You could say anything has value and thus qualifies as "finance." But you are always weighing two things: how much is something worth itself, and how much it costs to run it on the most expensive computer in history.

Social media, personal data, AI tokens—these are already well handled by Web2 and are basically free. Moving them on-chain only adds cost, without reducing anything. The value of individual items is too low to justify this machine. Most of what people tried to put on-chain in the last cycle failed this test, and it will be the same in the future.

The top layer is the huge capital that cannot come in. This is the real tragedy. Honestly, looking at who actively uses cryptocurrencies, the crowd is shockingly narrow—let’s call them "the relatively well-off group." They have enough money, don’t worry about daily survival, but not enough to manage large institutional capital. Apart from a few crypto-native funds, that’s about it.

The capital that should have come (family offices, sovereign funds, large institutions, corporate treasuries) look at this machine and turn away. Not because they don’t understand, but because its operation makes no sense to them.

Their list of objections is long, and honestly, most are valid: legal and regulatory uncertainty, custody risks, frequent hacking attacks, smart contract risks, MEV, inability to securely self-custody at scale, counterparty risks at every step. When you add all these up and compare to the marginal gains, the answer often is: not worth it.

In many eyes, crypto is a high-volatility, zero-sum arena where everyone fights over the same dollars. Honestly, they’re not wrong most of the time.

Thus, the crypto industry is stuck in a narrow band: the upper capital is too strange, and the lower applications are too trivial.

But look again at that objections list. Most are operational issues, which can be solved with dumb solutions: audits, insurance, regulated custodians, time. Remove these, and only two fundamental issues remain. Because they are not implementation flaws but inherent design attributes.

Public blockchains are permissionless, which puts them in a legal gray area. At the same time, they are transparent, which exposes everything.

Legality and privacy. This is the real missing piece of the old triangle, which only has two corners. Whether you can cross these two corners determines the entire game, and ultimately, it falls back on these two flaws.

Institutional capital collapse: privacy and compliance double barriers

Over ten years, the most honest answer to "is this legal" has been "more or less." For anyone managing real money, that’s a non-starter. And now, this answer is starting to change.

The first flaw directly stems from its core advantage. Anyone can do anything, which makes this machine valuable but also a regulatory minefield.

Permissionless is a double-edged sword: the feature that allows you to transfer funds without asking permission also enables others to do things that label the entire industry as a "scam paradise." For serious players, no matter how good the underlying tech, this is a veto.

This flaw cannot be fixed by better cryptography; it must be addressed by policy. By July 2025, the GENIUS Act will become law, providing the first federal-level framework for stablecoins as core financial payloads. Market structure legislation is also following closely. It’s not law yet, but the direction is clear. For entrepreneurs and allocators, the environment is much friendlier than two years ago.

The old dilemma of governance, decentralization, and legal risk has receded: now, running a compliant on-chain business is just a normal business decision.

So, the legality corner is more or less closing itself. But the other flaw is where the industry has been fundamentally wrong for ten years.

On-chain transparency is not an advantage; it’s a tax. Every position you hold is public, and the network charges you for "being seen" through MEV, frontrunning, sandwich attacks.

This is something everyone has gotten used to but should not accept as normal. On public chains, your entire financial life is broadcast. Every position, every transaction, every transfer—anyone with a block explorer can see it instantly. "This is transparency, an advantage," we’ve heard for so long that we no longer realize it’s actually a leak.

And it’s a quantifiable, ongoing tax. The moment your order enters the mempool, anyone can see it, then frontrun, sandwich, sandwich, or liquidate you.

This is not hypothetical. By mid-2025, over $1.8 billion in MEV has been extracted from Ethereum alone. These values are directly taken from ordinary users’ transactions simply because they are visible before settlement.

See who is already spending money to avoid it. Experienced trading desks and funds have long stopped broadcasting into the public mempool. They smuggle private relays and order flow auctions to hide their moves before execution.

Legal breakthrough: GENIUS Act implementation unlocks

Smart money has been buying privacy piece by piece because they understand that transparency makes them lose money. Everyone else just accepts paying this tax.

For retail traders, it’s even worse: every time an ordinary trader opens a position visible to the world, profits are lost in vain.

Transparency is sold as a "fair arena," but the actual effect is the opposite.

Now, focus on the capital we really want. No family office, sovereign fund, or large institution would put their balance sheet on a machine that can be read instantly by competitors.

Of course not. Letting the whole world watch your treasury in real-time makes no sense. They need their own private space within this shared computer.

Honestly, everyone needs it. You wouldn’t accept a bank posting your bills online, so there’s no reason to accept it here either.

That’s why payments and serious transactions still can’t be fully on-chain, and why equating privacy with "anonymous trading" is actually a bit laughable.

Encrypted communication has been mainstream for thirty years. Encrypted funds still aren’t. In a system built entirely on cryptography, that’s somewhat embarrassing.

Step back, and this absurdity becomes hard to ignore. Blockchain is built from cryptographic primitives: hashes, signatures, commitments—all cryptography from start to finish.

But the only thing it hasn’t done is encrypt users’ actual activities. We’ve built an entire cryptography cathedral, yet left the front door—your financial privacy—wide open.

We solved this problem for communication decades ago. No one finds encrypted messaging strange or suspicious; it’s the default, and the world still runs fine.

Transparency tax: $1.8 billion in MEV extracted

Applying the same logic to funds, the foundational cryptography primitives have been quietly improving over the past decade.

What’s truly lacking is performance: how to be fast enough, cheap enough, to reach production levels. This is both a math problem and a hardware problem. Hardware has caught up; specialized acceleration hardware has driven proof costs down to levels that can run at real throughput.

The question has never been "is this feasible," but "is it worth paying the cost." Now, the answer is finally: yes.

"Isn’t transparency the key? Reserve proofs, no hidden leverage, verifiable solvency." If privacy means hiding everything, then yes. But privacy doesn’t have to be that way.

The strongest argument against on-chain privacy deserves a real answer. Transparency is a burden. It’s how you verify whether a stablecoin is truly backed, how you check if a protocol can pay, how you catch hidden leverage before it blows up.

It’s also a tool for law enforcement to track stolen funds and for regulators to combat money laundering. Make everything opaque, and you lose the auditability that was half the value, and you hand criminals a handy tool.

This is a serious question, but it’s built on a false dichotomy: it seems you only have two options—"completely open" or "completely hidden."

You can prove your solvency, pass KYC, and stay within limits without revealing every position. Prove the fact, not the data.

This is the real point: the opposite of transparency is not hiding. Modern cryptography allows you to prove a statement true without revealing the underlying data that makes it true.

You can prove reserves exceed liabilities without revealing reserves details. Prove an address passed KYC without exposing who it is. Prove a position is within risk limits without showing the position. Prove a transaction is clean, not laundering money, without revealing the sender’s entire history.

This directly addresses the doubts. Auditors still get their guarantees. Regulators still get their compliance checks. Law enforcement still has legitimate disclosure pathways. The only thing gone is broadcasting everyone’s financial life, including every lurking predator, to the world instantly. You keep all the benefits of transparency, but the tax is gone.

Cryptography irony: open doors privacy vulnerabilities

Privacy and compliance have never been opposites. They seem so only because our past privacy tools were crude—for example, mixers that hide everything from everyone, including the police.

Regulatory privacy with proof mechanisms is the missing comprehensive solution in this debate. It allows regulated entities and private individuals to use the same chain, revealing only what they must, nothing more.

Today’s public chains are like a Google spreadsheet: they charge rent from you while exposing everything to strangers. The version that can keep secrets for you is a pure upgrade, and it’s precisely what will bring the next trillion dollars on-chain.

Face the reality of what most current crypto products actually provide. Remove consensus mechanisms, and a public chain is just a shared Google sheet recording everyone’s transactions—slower, more expensive, and readable by every competitor and predator on Earth.

Compared to a real Google sheet, the only added value is decentralized consensus: ensuring no one can secretly alter a row. That guarantee is real and valuable. But today, it’s the only value-add.

Every exchange and DeFi protocol built on mainstream public chains ultimately rents this feature.

With provable compliant privacy, it’s no longer just a worse spreadsheet. It becomes something that the old world cannot find a match for: a shared machine that can verify transactions are true without revealing their content.

We’ve accepted this pattern elsewhere: encrypted emails that prove delivery without revealing content. Funds shouldn’t be the only exception.

In almost 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.

A common rebuttal is that the current crypto crowd doesn’t seem to want this—they’re trading now, and current products seem to suit them fine.

Exactly—that’s the key. Early adopters are only those already served by the current version. They are not the missing market. The missing market (institutions, treasuries, those who would never publish their bank statements) sits on the other side of these two flaws.

Close these two gaps, and you get the ultimate bridge—one that can carry a multi-trillion financial system onto the track it was secretly built for from the start.

This most powerful cryptographic system in history will finally learn how to keep a secret. That will change everything.