Privacy in the realm of cryptocurrencies refers to the property of data obfuscation. In the traditional world when we transact with cash or cards, our financial information is exposed to intermediaries, such as banks and credit card companies, who record our activities for their own purpose.
Cryptocurrency transactions, however, are much less exposed to the public with private keys ensuring that only you have access to your wallet. Cryptocurrency transactions are usually performed pseudonymously, meaning that only the participants of a transaction have the information needed to determine its true origin.
A transaction is performed by the use of addresses which work as the pseudonym of their users. This ensures that any person looking at the public blockchain can only tell that a transaction has taken place, they cannot know who sent it or who received it.
This anonymity is ensured through cryptographic algorithms and one-way cryptographic functions. However, because all addresses are public, malicious actors could try to connect their transaction to the people behind it. This could be possible if users are not careful with their data.
Privacy in cryptocurrency is an evolving concept that remains to be truly realized. There are still some shortcomings in existing anonymous protocols, and there is an active effort from developers to try and optimize existing ones in order to create more robust systems of privacy.
As technology evolves, so will the need for better privacy protections and protocols as public trust in cryptocurrencies remains necessary for them to be successful.