Ban Privacy Tools, Lose Oversight — RUSI Urges Regulators to Partner with Crypto Developers

A leading UK security think tank is warning that outlawing blockchain privacy tools could do more harm than good — and is urging regulators to work with developers instead.

In a new paper, “Privacy-Enhancing Technologies in the Crypto Industry,” London-based Royal United Services Institute (RUSI) argues that a blanket ban on blockchain privacy solutions would likely push criminals onto unregulated services and make investigations harder. The report — informed by a July 2025 roundtable convened by the UK Home Office and the National Economic Crime Centre — highlights the growing role of privacy-enhancing technologies (PETs) such as zero-knowledge proofs, confidential stablecoins and privacy pools.

RUSI says demand for privacy tools is not driven only by bad actors. The paper identifies four legitimate drivers: individuals and organizations trying to avoid hacking and extortion; concerns about corporate and consumer data harvesting by AI; privacy needs of cryptocurrency firms (for salaries and business flows); and protections for high-net-worth or prominent people facing criminal targeting or authoritarian surveillance. The report points to a real-world context for those needs — citing a spike in “$5 wrench” attacks that cost victims a record $41 million in 2025.

Roundtable participants — a mix of industry representatives, regulators and enforcement agencies — repeatedly warned against bans. “Banning the technology would result in illicit actors using unregulated services,” the report says, noting that would leave law enforcement with fewer entities to contact for information and reduce investigative options. Instead, attendees advocated expanding collaboration between the public sector and providers and exploring ways PETs can be used to improve detection of illicit activity.

RUSI Associate Fellow Allison Owen told Decrypt that developers and officials must work together to bake compliance features into privacy tools. She said companies that already combine PETs with compliance mechanisms are willing to engage with authorities, and emphasized that legitimate, responsible use should not be overshadowed by the presence of malicious actors.

The report’s overall outlook is optimistic: participants expect privacy-enhancing mechanisms — particularly zero-knowledge proofs — to be increasingly integrated into business practices over the coming year. But RUSI and Owen stress that widespread adoption depends on “extensive” public-private cooperation to build trust. Integrating compliance features, they argue, is the path to expanding PETs’ legitimate use while keeping criminal exploitation in check.

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