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:

1. FHE boasts of a higher security level than enclaves.

2. It operates on a computation-bound framework instead of a communication-bound framework, presenting a scalable alternative to Multi-Party Communication (MPC).

3. 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.

Introduction

It’s become increasingly clear that Web3 is the future of the Internet, but blockchain’s innate transparency presents challenges that inhibit the industry’s growth trajectory. This is because a growing number of Web3 use cases revolve around sensitive data, rendering the full openness of public blockchains problematic.

This is for two main reasons:

1. Exclusion: Payments, voting, medical records, decentralized identity, and countless other use cases require confidentiality. As the scope of blockchain grows, the absence of robust encryption solutions could either push these applications off-chain or force them to compromise on data confidentiality.

2. Security: On-chain data transparency makes it much simpler for malicious parties to identify and target users. This has led to billions lost through phishing attacks and other exploitative tactics like MEV extraction.

While in Web2 space data encryption is a well-established and required standard, it seems that the ‘lack-of-encryption’ for commercially sensitive and personal data in Web3 is still a growing and evolving threat. To scale the industry forward, privacy must be an integral part of blockchain, meaning that data encryption and computation capabilities should be key features of all blockchains.

To address this challenge we need to bring developers the infrastructure and tools that allow easy integration of robust data encryption capabilities in the applications that are essential for this space to grow.

Fhenix is rising to this challenge.

Fhenix is building the first confidential smart contract platform using fully homomorphic encryption (FHE). FHE is a novel cryptographic scheme that enables direct computation over encrypted data without ever revealing the underlying data. Fhenix’s goal is to advance application development in the blockchain ecosystem by bringing data encryption and encrypted data computation to smart contracts, transactions, and on-chain assets for the first time.

By leveraging the power of FHE, Fhenix redefines how sensitive data is being managed in the blockchain ecosystem, envisioning a future where privacy and decentralization are not at odds, but rather, complementary aspects of a secure digital economy.

Fully Homomorphic Encryption

FHE  is considered the holy grail of cryptography, as it enables direct computation over encrypted data while never revealing the data to the server, or in the context of blockchains – to validators or sequencers. This is all groundbreaking, with recent breakthroughs paving the way for Homomorphic Encryption data processing to arrive at last on the blockchain.

This means that Fhenix now enables a wide array of versatile use cases such as:

• Trustless Gaming: Every game that requires players to hide their information from other players, like on-chain casino gaming, where you need to hide information between opponents or the dealer, while still allowing computation on the data.

• Private Voting: Both on-chain and off-chain voting mechanisms can operate with fully encrypted variables, ensuring confidentiality without sacrificing trustworthiness.

• Privacy-Preserving AI: The ability to compute encrypted data opens the door for on-chain artificial intelligence applications, thereby expanding the range of possible use cases exponentially.

• Confidential Token Transfers: P2P payments, commercial transactions, and other sensitive transfers can be made private, yet auditable.

These are all multi-billion dollar industries growing at a rapid pace, but applicability also extends to areas such as blind auctions, MEV protection, account abstraction, and confidential DAOs. We are also merely at the beginning of what's truly possible, with many use cases undiscovered.

This is all possible due to fhEVM, which we’ll cover next.

The Gold Standard: fhEVM

fhEVM is a set of extensions for the Ethereum Virtual Machine (EVM) that allows Solidity developers to seamlessly create encrypted smart contracts without any cryptographic expertise. Solidity is the most popular Web3 language to date and comes with an extensive suite of developer tools and libraries, making fhEVM extremely easy to begin working with.

This is important, as blockchains that rely upon entirely novel programming languages have significant costs associated with attracting and training developers to begin using their unique language. In contrast, fhEVM taps into the expansive EVM community and enables developers to easily begin deploying new, innovative projects.

Fhenix also has a modular, extension-like design which means that its ability to compute encrypted data can be integrated across all blockchain layers, enabling the easy development of confidential smart contracts on public blockchains. For example, developers can now build applications around encrypted data, such as decentralized email services or private voting.

This comes in the form of the Fhenix SDK which can now be used by developers to add encryption capabilities to their existing products, seamlessly, without any changes to their existing smart contracts.

Fhenix’s limited access devnet was deployed in July 2023, and provides an approachable FHE playground where the fhEVM is already functional and in use. To apply for early access click here.

The Confidential Compute Constellation: Blockchain’s Encryption-First Future

While public blockchains are pseudonymous in nature, this is insufficient for many blockchain applications and will become increasingly easy to correlate on-chain activity with real-world identities. Also, It is important to understand that confidentiality is not a “one-size-fits-all” issue solved by one technology alone. Like in blockchains, there are multiple tradeoffs between confidentiality technologies, such as security, scalability, decentralization, complexity and cost.

This insight led to the formation of the Confidential Compute Constellation: a collective of interconnected confidential solutions serving as an encryption hub for Web 3.0.

The Confidential Computing Constellation starts by combining Secret Network’s battle-tested platform, experience and community with the novel Fully Homomorphic Encryption technology that Fhenix introduced into a full-fledged smart contract platform.

The goal of the Constellation is to combine a wide range of confidential-computing technologies and solutions to create a single hub for privacy and confidentiality on Web3, offering confidential computing applications on member networks and providing privacy as a service to the EVM ecosystem and beyond.

Encryption Allstars: The Team Behind Fhenix

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, Fhenix team is composed of the world-leading experts in private computation solutions.

“Fhenix addresses a huge problem in the Ethereum ecosystem: a lack of encryption for commercially sensitive data,” said Guy Zyskind, Fhenix and Secret Founder. "Fhenix gives users the confidence to put sensitive data on public blockchains while also giving developers the tools to compute and transform that data for the first time.”

Fhenix recently raised a $7.5M Seed Round led by Multichain Capital and Collider Ventures, with collaboration from Node Capital, Bankless, HackVC, TaneLabs, Hashkey and Metaplanet. The funds will be used to bring the Fhenix Network into public testnet early next year and to support ecosystem application development.

Blockchain’s Renaissance: Upcoming Public Testnet

FHENIX’s public testnet titled Renaissance will be open for participation in Q1 of 2024, inviting developers to familiarize themselves with the fhEVM environment and build novel applications. This is particularly exciting for developers keen on being first-movers in an emerging field of blockchain, and more details will be shared in the coming weeks.

We invite those interested to apply for early testnet access here.

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Fhenix: Programable, Scalable, Encrypted.