Blockchain is all about transparency, but this can create problems when people or companies want to keep their financial or private data secure. So, how do we ensure privacy on a public blockchain?
Enter three key technologies: Zero-Knowledge Proofs (ZKPs), Fully Homomorphic Encryption (FHE), and Secure Multi-Party Computation (MPC).
These tools help keep sensitive information private, even while operating on decentralised systems.
Let's break them down for anyone new to this space:
Blockchains, like Solana or Ethereum, store all transactions on a public ledger. This means anyone can look up details like transaction amounts, sender, and recipient. While this builds trust, it can also expose personal financial info or sensitive business data. For privacy-focused people and enterprises, this is a challenge.
These privacy tools offer a way to keep data secure without losing the benefits of decentralisation.
ZKPs are a powerful privacy tool. They let someone prove they know a secret (like a password or key) without showing it.
Example: Think of proving you have enough funds to buy an item online without showing your exact balance.
How it works: In a blockchain, ZKPs let you prove a transaction is valid without revealing any details about the transaction itself (amounts, parties, etc.).
Real-world Example: Zcash uses ZKPs (zk-SNARKs) to enable private transactions on its blockchain. Users can send and receive funds without revealing the transaction details, maintaining full privacy.
Advantages for Beginners:
ZKPs make transactions private.
They’re useful in keeping identities safe in decentralized apps (dApps).
Real-life use case: Private payments on the blockchain, where the transaction is confirmed but the details remain hidden.
FHE allows you to perform operations on encrypted data. Think of it as submitting encrypted health data to a research lab, where they can analyse it without decrypting the actual details.
Example: Let’s say you want someone to calculate your tax returns, but you don’t want to reveal all your financial details. With FHE, they can perform the calculations while everything stays encrypted.
How it works in blockchain: Smart contracts can run computations on encrypted data, so sensitive information remains secure even during processing.
Real-world Example: Microsoft SEAL is an FHE library that allows encrypted machine learning on sensitive data. It’s used in industries like healthcare for analyzing encrypted medical records while keeping the patient data private.
Advantages for Beginners:
Your data stays private, even while being used in computations.
Great for private business transactions or smart contracts that need to operate securely.
MPC is about getting multiple people to work together to compute something without anyone sharing their actual data.
Example: Imagine a dao calculating their collective expenses without showing each other their individual contributions.
How it works in blockchain: MPC allows different parties to collaborate on computations without exposing their private inputs, making it ideal for private voting systems, confidential trades, and shared private data.
Real-world Example: Unbound Security uses MPC for secure key management. It allows companies to distribute cryptographic keys among several parties without revealing the full key to any single party, enhancing security.
Advantages for Beginners:
Participants can work together without revealing their data.
It’s useful for private collaborations or group-based decisions on decentralized platforms.
Combining Zero-Knowledge Proofs (ZKPs), Fully Homomorphic Encryption (FHE), and Secure Multi-Party Computation (MPC) creates a more robust and flexible privacy system for blockchains. Here’s how:
ZKPs + MPC: Ensures participants follow rules in multi-party computations without revealing sensitive data. This is useful in private voting or collaborative decision-making.
FHE + ZKPs: Allows encrypted computations (FHE) while using ZKPs to verify results, ensuring trust without revealing sensitive details. Ideal for secure smart contracts.
MPC + FHE: Enables multiple parties to collaboratively compute over encrypted data without revealing the data itself, combining privacy with efficient shared processing.
ZKPs + MPC + FHE: By merging all three, you can build highly secure, scalable, and private decentralized applications (dApps) that maintain both data confidentiality and verifiability.
Private Data Analytics: Companies can share encrypted datasets using FHE for analysis while using MPC to collaborate on the results. ZKPs ensure the computations were carried out correctly.
Secure Healthcare Applications: Hospitals can run encrypted health data computations across institutions (MPC + FHE) while ZKPs validate the process without compromising patient privacy.
Confidential Voting Systems: Encrypted ballots (FHE) can be tallied through MPC, ensuring that the results are accurate and verified by ZKPs without revealing how individuals voted.
These combinations are critical for creating secure environments in decentralized apps, private trading platforms, confidential financial services, and anonymous voting systems. By merging these technologies, blockchain applications can ensure privacy, security, and scalability, making it possible to protect sensitive data while still benefiting from the transparency and trust that blockchains offer.
Confidential Financial Exchanges: Platforms like dYdX use ZKPs to enhance privacy by enabling confidential transactions without exposing trade details. FHE ensures that trades can be calculated without decrypting the sensitive data.
Decentralized Health Records: MediBloc utilizes FHE and MPC to allow doctors and patients to collaborate on encrypted health records, ensuring privacy and data integrity without revealing personal information.
Private DeFi Transactions: Aztec Network employs ZKPs for private payments, ensuring transaction amounts and counterparties remain hidden while maintaining the validity of the transactions.
For anyone new to blockchain, it’s important to understand that while blockchain offers transparency and trust, privacy is becoming just as critical. Tools like ZKPs, FHE, and MPC ensure that privacy can coexist with decentralization. Whether you’re sending private transactions or building the next privacy-focused dApp, mastering these concepts is essential for the future of Web3.
With privacy-preserving technologies like ZKPs, FHE, and MPC, we’re moving towards a decentralized future where you don’t have to compromise on privacy for transparency. Whether you’re new to blockchain or looking to build privacy-focused apps, these tools are game-changers for the ecosystem.