Blockchain aims to be a space of freedom from arbitrary system ownership by centralized entities. A lack of privacy hinders said freedom. Blockchain commercialization is happening at a snail’s pace because of the general hesitation in using applications that open up data for public consumption. Transparency and privacy present a false dichotomy in Web3 and should co-exist to realize the values of Web3 across a broader spectrum of use cases.
Data Encryption on Blockchain
Blockchains sacrifice data confidentiality while minimizing trust, encouraging transparency and executing rules correctly. Data in a blockchain is public, as nodes need transparency to reach a consensus. However, this is not a goal of the system but a by-product. It limits the use cases we can build in Web3. For instance, private voting in DAOs, medical records management and sharing, payments, blind auctions, on-chain identity attestations and confidential real-world asset tokenization aren’t feasible without the confidentiality and privacy of user data.
Moreover, on-chain data transparency makes it not only possible but easy for malicious actors to identify and target users, leading to expensive phishing attacks and MEV extraction tactics.
"Privacy in messaging and payments, and the like, is so fundamental to democracy."
—David Chaum
At CCDAS 2023, James Tromans, Google Cloud’s Head of Web3 Engineering, hailed ZK-proofs (Zero Knowledge proofs) as particularly relevant in financial services and Web3 more broadly. While we appreciate the nod toward privacy-preserving technologies, ZK-proof isn’t enough for several potential Web3 use cases. It’s scalable but has its own limitations.
See, a ZK-proof is a cryptographic technique that allows a prover to show to another party- the verifier- that a certain statement is true without exposing the statement or any information about it. Meaning that a zero-knowledge proof proves knowledge of information without giving away the information itself. And it makes it impossible to retrieve the original information from the proof. However, ZK-proofs don’t hide data from the prover or the third entity, so on a certain level, confidentiality is compromised.
Other privacy-preserving technologies work on the notion that to make Web3 more secure, we need to improve the scalability and efficiency of communications across tokens, networks, layers and applications. While programmable confidentiality is the goal, working on improving communication is like Henry Ford training horses to be faster because that’s what people asked for. Groundbreaking developments and innovation often blindside us because they aren’t obvious. While we focus on improving what’s in front of us, sometimes something appears that renders the status quo obsolete.
So, what’s the solution to blockchain’s data encryption problem, you ask?
FHE or Fully Homomorphic Encryption, the holy grail of cryptography
FHE is an encryption system that allows you to perform addition, multiplication, bit operations and more on top of encrypted data without needing to decrypt it. It provides quantum-secure computing with the guarantee that plaintext data and the derivative results are never exposed even to the server and stay shielded from breaches and modifications even when the infrastructure is compromised.
So, as FHE becomes commercially available-
Data will stay encrypted at rest and across its computational lifecycle, optionally decrypted only in a trusted environment.
Data will be securely channeled into AI, big data and analytics applications to derive insights from one or multiple sources without exposing the information, decryption keys or the underlying evaluation code.
While ZK-proofs are restricted to blockchains, FHE has the potential to expand beyond Web3, evident from the fact that a dozen companies, including Intel, are rushing to build hardware to support FHE.
Why FHE?
Current data privacy models are quickly losing relevance in Web3 implementations, as:
We cannot guarantee infrastructure security. Breach points will always be there, waiting to be exploited. Therefore, securing data and preserving confidentiality means using advanced encryption technologies like FHE.
Quantum computing algorithms easily solve complex discrete logarithmic problems or factor large integers, the basis of widely used encryption technologies. This creates a need for Post-Quantum Cryptography (PQC) techniques such as FHE.
FHE is gaining ground as:
FHE boasts of a higher security level than enclaves.
It operates on a computation-bound framework instead of a communication-bound framework, presenting a scalable alternative to Multi-Party Communication (MPC).
It’s more generalizable than ZK-proofs, which cater to single-user privacy and necessitate an alteration in the programming paradigm.
Fhenix: Pioneering FHE Implementation
Fhenix is an FHE-enabled EVM protocol that provides fully homomorphic encryption natively for Solidity developers. It relies on fhEVM, a Fully Homomorphic EVM that allows developers to create encrypted smart contracts without specializing in cryptography.
Since Solidity already comes with an extensive suite of developer tools and libraries, getting started with fhEVM is easy. You don’t require learning new programming languages, a typical challenge with new technologies and platforms in Web3. Our long-term goal is to deliver an extension that allows for optional confidentiality and leaves it up to developers to code that in. See this post for a working example of a fhEVM contract by way of confidential ERC20 tokens.
FHE is the technology that will encourage Web2 corporates and financial institutions to partake in Web3. It’s also what Web3 developers have been waiting for to develop secure applications. Guy Itzhaki, CEO of Fhenix, shares how a Web3 developer built a private voting application in 24 hours using fhEVM on the devnet, made accessible in July 2023.
The consequences of lack of privacy are apparent in the Bitcoin community, where government and regulatory authorities can easily match transactions to real people. Guy Itzhaki says, “FHE regulation, like any other potent technology, highly depends on how we implement it and the kind of applications it powers. In general, we see increasing demand and acceptance from governments to add data privacy elements in technological fields”.
Fhenix was founded by Guy Zyskind, the Founder of Secret and is led by Guy Itzhaki, a former Director at the Homomorphic Encryption & Blockchain Group at Intel.
Forged by a partnership with Zama, a market leader in fully homomorphic encryption technologies, the Fhenix team comprises world-leading experts in private computation solutions.