Fully Homomorphic Encryption (FHE) - Unlocking a New Era of Data Privacy

2023-11-25 09:11:14

The Emergence of FHE in the Crypto Space

Recently, the cryptocurrency community has been buzzing about Fully Homomorphic Encryption (FHE), an advanced encryption technology that offers even more privacy than Zero-Knowledge Proofs (ZKP). FHE enables data privacy in various domains such as cloud storage, genetic prediction, biometrics, and privacy-focused crypto transactions. Venture capitalists have also shown particular interest in FHE lately. Let's explore my understanding of this groundbreaking technology:

What is FHE?

FHE stands for Fully Homomorphic Encryption, which allows people to perform computations on specifically encrypted data without the need to decrypt and expose the data's privacy. FHE has been around for a while as a concept in the broader context of the internet. However, it gained recent attention in the crypto field due to the integration of FHE features into Ethereum by Fhenix Network through the fhEVM solution. Any developer can incorporate FHE functionality into transaction flows in the form of pre-compiled binaries.

Unlocking New Possibilities with FHE

So, what possibilities does FHE unleash? In gaming scenarios, for example, platforms can perform computations on players' cards without exposing the specific details, ensuring fairness in gameplay. In DAO voting scenarios, whales can participate in governance voting without revealing their vote count, while protocol outcomes remain unaffected.

In the realm of privacy transactions, users can submit fully encrypted transactions to the mempool without disclosing sensitive information like transaction amounts. In regulatory compliance scenarios, governments can monitor transactions involving the flow of funds across borders, deducting assets linked to blacklisted addresses without inspecting legitimate transactions. The possibilities expand far beyond what ZKP offers, making FHE a game-changer.

FHE vs. ZKP: Understanding the Difference

What sets FHE apart from ZKP? In simple terms, ZKP solves the problem of consistent transmission of data under encryption. The submitting party can prove the authenticity of the data to the receiving party without revealing the actual data. It is a point-to-point encryption scheme, with lightweight zk-SNARKS finding extensive use in layer2 Rollup solutions.

On the other hand, FHE aims to address the issue of re-computation of encrypted data during transmission. It is a many-to-many encryption solution with broader applications. However, FHE has not yet gained widespread adoption due to the substantial computational power requirements and low efficiency during processing.

FHE on the Blockchain: The fhEVM Solution

ZAMA has established the fhEVM solution, integrating FHE into the blockchain domain. Similarly, Phenix Network has modularized FHE into a pre-compiled processing pipeline, embedding it into various blockchain ecosystems. Currently, it is most suitable for OP-rollups and can even load FHE functionality only for specific transactions.

This means that users can choose to initiate transactions with FHE on layer2 to protect their privacy. While these transactions may incur slightly higher costs compared to regular transactions, they provide enhanced security and privacy. This is expected to attract market makers and institutional users with a focus on privacy transactions. The demand and use cases are well-aligned; the key lies in balancing efficiency, performance, and costs.

Privacy Transactions: The Next Frontier After Scalability

In my opinion, privacy transactions will be the next refined trend, following the scalability challenge. The core issue of scalability now lies not in infrastructure technology but rather in lacking necessary conditions such as regulations and mass adoption in the market. Privacy transactions, on the other hand, optimize user experiences, transactions, and usage scenarios through technological infrastructure. In many ways, it will have wide-ranging applications similar to ZKP technology.

With FHE's implementation, the gap between decentralized exchanges (DEX) and centralized exchanges (CEX) can be narrowed, ensuring a more secure and private trading experience on layer3 privacy application chains. Gaming platforms can address security issues associated with random number generation on the blockchain. Moreover, regulatory intervention can be achieved in a compliant manner without excessive interference.

The possibilities for FHE are extensive. However, the current TPS (transactions per second) is indeed quite low, barely reaching the level of 2-5 TXS per second, which is close to the Ethereum mainnet level. To achieve transaction processing capacity in the range of thousands through rollup solutions, there is still a long way to go.

Note: I have mainly provided insights from a crypto perspective, but FHE also finds significant applications in the fields of the internet and AI. Interested readers are encouraged to further explore its potential.