Privacy chains will define the fourth generation of blockchain: Cardano founder predicts Zcash and Midnight will lead the revolution

On November 10, 2025, Cardano founder Charles Hoskinson publicly predicted that privacy-preserving blockchains will form the core of the fourth-generation blockchain technology. This assertion coincides with Zcash (ZEC) experiencing a 150% surge this year, and the Midnight privacy sidechain testnet seeing institutional participation exceeding expectations.

Technological evolution and regulatory reforms are resonating: the US “Clear Act” and “Genius Act” provide compliance frameworks for privacy technologies, while the EU GDPR achieves technical adaptation on the Midnight chain via the Kachina virtual machine. Industry data shows that the total value locked (TVL) in privacy chains has surpassed $8 billion, a 300% increase compared to 2024, validating market demand for blockchain solutions that balance privacy and compliance.

Technical Architecture and Innovation Breakthroughs

Midnight’s Minotaur consensus mechanism represents the pinnacle of hybrid architecture. This technology combines Proof of Work (PoW) and Proof of Stake (PoS), enabling the network to process both public and private transactions simultaneously, with zero-knowledge proofs ensuring verification efficiency. Testnet data indicates that Minotaur maintains a throughput of 2000 TPS while reducing the energy consumption of privacy transactions to just 3% of that in pure PoW networks. This breakthrough in energy efficiency paves the way for large-scale enterprise applications.

The Kachina Virtual Machine (KVM) achieves regulatory compliance breakthroughs. Unlike traditional EVMs that focus solely on execution efficiency, KVM incorporates built-in data protection modules that automatically encrypt sensitive information and generate auditable compliance proofs. This design allows enterprises to meet GDPR’s “right to be forgotten” without exposing business secrets. Currently, three multinational banks are testing customer data management solutions on Midnight.

Zcash’s zk-SNARKs upgrade enhances practical performance. Using the Halo2 recursive proof system, Zcash reduces transaction verification time from seconds to milliseconds and decreases proof size by 78%. These technical improvements bring the cost of privacy transactions below $0.001, surpassing traditional financial privacy solutions in cost-effectiveness for the first time. On-chain data confirms that Zcash’s shielded transaction volume grew by 340% in Q3, indicating that technological advancements are translating into actual adoption.

Regulatory Environment and Market Drivers

Clarified US regulations create compliance opportunities. The Clear Act classifies privacy tokens as either “technological tools” or “financial instruments,” with only the latter subject to securities laws. This classification grants regulatory exemptions to privacy chains like Zcash. Meanwhile, the Genius Act establishes a “compliant privacy sandbox,” allowing financial institutions to test privacy chain solutions in controlled environments, significantly accelerating the transition from lab to market.

EU data protection regulations serve as natural accelerators. GDPR’s data minimization principles align closely with the technical features of privacy chains. Midnight’s “verifiable computation” approach enables companies to demonstrate GDPR compliance without revealing raw data. This capability has attracted several European healthcare data companies to migrate to privacy chains, with an expected $5 billion in on-chain data assets by 2026.

Institutional demand is creating new growth drivers. Fidelity Digital Assets, in its November report, listed privacy chains as a “must-have” category, citing their low correlation with traditional assets as valuable for portfolio optimization. BlackRock holds $1.2 billion worth of Zcash through tokenized funds, providing liquidity and legitimacy to the sector.

Ecosystem Development and Competitive Landscape

Cardano’s DeFi ecosystem has become the foundation for Midnight’s launch. With TVL surpassing $500 million, leading protocols like Indigo Protocol and Fluid Tokens have announced support for cross-chain interoperability with Midnight. This ecosystem synergy allows Midnight to directly access Cardano’s 2 million user base, giving it a significant early-mover advantage over other privacy chains.

Integration of Bitcoin smart contracts opens new scenarios. Through Cardano’s EVM sidechain, Bitcoin holders can participate in privacy chain ecosystems without transferring assets. This interoperability may attract Bitcoin maximalists. Currently, approximately $870 million worth of Bitcoin is wrapped into privacy DeFi protocols, accounting for about 0.4% of circulating supply.

Enterprise solutions are competing with differentiated focuses. While Zcash emphasizes financial privacy, Midnight targets enterprise data management; competitors like Aleo focus on machine learning data privacy. This sector segmentation reflects a shift from general-purpose privacy chains toward vertical-specific applications, with the overall market expanding into trillions of dollars.

Investment Logic and Risk Considerations

Valuation models are influenced by the maturity curve. Most privacy chain projects are still in testnet phases, with valuations primarily based on milestone achievements. Key upcoming milestones include the launch of Midnight’s mainnet (expected Q1 2026), Zcash’s shielded pool surpassing $20 billion, and the establishment of cross-chain privacy standards.

Regulatory risks remain. Although US regulatory clarity improves, the Financial Action Task Force (FATF) may still view privacy chains as potential AML loopholes. Investors should limit privacy chain assets to no more than 15% of their portfolio and prioritize projects with proven compliance mechanisms.

Technical risks also require rational assessment. Zero-knowledge proof cryptography has yet to be tested against quantum computing threats. While most projects have deployed quantum-resistant schemes, their real-world robustness remains to be validated. Diversifying investments across different technical approaches can effectively mitigate the risk of technical failure.

Conclusion

Charles Hoskinson’s predictions about privacy chains are being rapidly validated by market developments—from Zcash’s 150% surge to the institutional enthusiasm for Midnight’s testnet—all signaling that blockchain technology is entering a new era of privacy protection. In an era where data is the core productive element, privacy chains, through technological innovation and regulatory adaptation, may ultimately resolve the biggest paradox of the digital economy: how to protect privacy while unlocking data value. With mainnet launches and standardization efforts advancing, privacy chains are poised to grow into a trillion-dollar market by 2026, redefining blockchain’s strategic role in global digital infrastructure.