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<p>Blockchain and the Web3 industry that’s built atop of it has made great strides in its quest to become ready for prime time, particularly in terms of accessibility. For years, one of Web3’s biggest challenges was the problem of the user experience, which created dozens of hurdles that put off all but the most stubborn of people from trying to get to grips with it.&nbsp;</p>
<p>Interacting with Web3 apps used to be anything but straightforward. The complexities were endless, with the need to create a digital wallet, add and manage various blockchain networks, create and store a 12-word seed phrase, sign transactions and pay for gas fees in the network’s native token.&nbsp;</p>
<p>However, the industry has managed to dramatically simplify these tasks thanks to innovations such as <a href="https://www.coingecko.com/learn/account-abstraction-crypto" target="_blank" rel="noopener noreferrer nofollow">account abstraction</a>. With the advent of AA, developers can now build wallets that are much more user-friendly, with Web2 style account creation and login methods, social recovery features and simplified transactions that only require a single click. Further innovations, such as paymasters, do away with the need to maintain different token balances to pay for gas fees.&nbsp;</p>
<h2 class="wp-block-heading" id="transparency-is-a-problem">Transparency Is A Problem</h2>
<p>Many blockchain proponents can now argue that Web3’s usability challenges have largely been solved, but there remains another crucial problem that’s preventing the industry from going mainstream. For blockchain remains extremely transparent by nature, meaning there’s little to no privacy for its users.&nbsp;</p>
<p>Privacy and confidentiality are perhaps the most important problem that blockchain needs to overcome. Public blockchains such as Ethereum often tout their transparency as a core strength, but while it can be advantageous in many instances, it also creates a lot of obstacles that make wider adoption unfeasible. For example, the lack of confidentiality in blockchain exposes sensitive transaction details that prohibit many kinds of business from adopting crypto for payments. If an organization’s finances are entirely in the public domain, including the identities of the companies and individuals it deals with and the amounts it pays and receives, there’s simply no way it can adopt cryptocurrency, as this exposes it to competitors and likely means it will fall foul of compliance regulations.&nbsp;</p>
<p>To enable full confidentiality in Web3, there needs to be a way to encrypt blockchain data.&nbsp;</p>
<h2 class="wp-block-heading" id="what-does-confidentiality-bring-to-blockchain">What Does Confidentiality Bring To Blockchain?</h2>
<h3 class="wp-block-heading" id="private-transactions">Private transactions:</h3>
<p>The lack of confidentiality in blockchain transactions means that sensitive payment details are exposed to anyone who cares to look. By encrypting blockchain transaction data, we can protect the identities of each participant, as well as the transaction amounts. It also means greater security, as confidential transactions are essentially tamper-proof. In addition, fully encrypted transactions will help to put an end to the potential for unethical practices such as “front-running”, as malicious actors have no way to know which transactions should be prioritized. Moreover, confidential transactions mean organizations and users always remain compliant with local data protection regulations.&nbsp;</p>
<h3 class="wp-block-heading" id="on-chain-auctions">On-chain auctions:&nbsp;</h3>
<p>Confidentiality will also benefit the on-chain auction process, which can enhance NFT marketplaces, token sales and governance processes. Users will be able to make anonymous bids without exposing any details about themselves, making it impossible for anyone else to know who is trying to buy the digital assets on offer.&nbsp;</p>
<p>&nbsp;transactions involving premium items or significant financial decisions.</p>
<h3 class="wp-block-heading" id="anonymous-voting">Anonymous voting:&nbsp;</h3>
<p>Another benefit of confidentiality is on-chain voting processes, which are key for decentralized autonomous organizations or DAOs, consensus mechanisms and so on. By enabling users to vote fully anonymously, it prevents any manipulation of coercion from going on, meaning that votes are more free and democratic. It will also make votes more secure by preventing anyone from trying to study voter patterns to manipulate the democratic process. Of course, votes will also be more compliant.&nbsp;</p>
<h3 class="wp-block-heading" id="confidential-gaming">Confidential gaming:&nbsp;</h3>
<p>One of the less-discussed beneficiaries of blockchain data encryption is the booming Web3 games industry, where anonymity can bring significant advantages to players. Currently, the transparency of blockchain causes a number of problems. Users can analyze blockchain data to try and ascertain the identities and social media accounts of other players, expose their real-time positions and analyze historical data to understand their strategy.&nbsp;</p>
<p>If game transactions became confidential, these advantages would disappear, making games much fairer, while reducing the risk posed to players by phishing attacks.&nbsp;</p>
<h3 class="wp-block-heading" id="decentralized-identities">Decentralized identities</h3>
<p>Blockchain encryption can help to make <a href="https://www.w3.org/TR/did-core/" target="_blank" rel="noopener noreferrer nofollow">DIDs</a> stronger. These protocols currently store sensitive, de-anonymized data off-chain, and it makes for a tempting target for hackers. Greater confidentiality would ensure users have better control over their personal data, and the ability to selectively disclose certain identity attributes such as their citizenship while obscuring anything else. It will also aid in portability. Many DIDs are designed to operate across multiple networks, and the information within them is therefore portable. By encrypting this information, it becomes more secure when it travels across networks.&nbsp;</p>
<h3 class="wp-block-heading" id="mev-prevention">MEV Prevention</h3>
<p><a href="https://ethereum.org/en/developers/docs/mev" target="_blank" rel="noopener noreferrer nofollow">MEV attacks</a> are made possible by the fact that pending transactions are visible on-chain via the blockchain’s mempool. Malicious validators can gain benefits through front-running and sandwich attacks to make financial gains, such as paying lower gas fees by prioritizing their own transactions over another user’s. But if these transactions were all confidential, it would eliminate these opportunities completely.&nbsp;</p>
<h2 class="wp-block-heading" id="zk-proofs-aren-t-enough">ZK-Proofs Aren’t Enough&nbsp;</h2>
<p>A lot of attention has been paid to <a href="https://ethereum.org/en/zero-knowledge-proofs" target="_blank" rel="noopener noreferrer nofollow">zero-knowledge proofs</a> or ZK-Proofs, and they’re often said to represent the future of blockchain.&nbsp;</p>
<p>ZK-Proofs are a clever encryption method that uses a cryptographic protocol to enable one user to prove knowledge of certain information, such as the details of a transaction, without revealing the actual details of that knowledge. This technique has proven to be useful in a lot of applications, and it is one of the most popular tools for enabling private blockchain transactions. For instance, the popular privacy cryptocurrency <a href="https://z.cash/" target="_blank" rel="noopener noreferrer nofollow">Zcash</a> utilizes ZK-Snarks (a form of ZK-proof) to prove transactions are valid without showing anyone the details, enabling entirely anonymous transactions without the risk of double-spending.&nbsp;</p>
<p>Although they have a lot of fans, ZK-Proofs are disadvantaged because they’re unable to computations on encrypted data, which limits their usefulness. In addition, they’re also known to be extremely resource-intensive, which raises questions about their scalability.&nbsp;</p>
<h2 class="wp-block-heading" id="fhe-ftw">FHE FTW!</h2>
<p>The alternative is an emerging technique called <a href="https://research.ibm.com/topics/fully-homomorphic-encryption" target="_blank" rel="noopener noreferrer nofollow">Fully Homomorphic Encryption</a> or FHE, which paves the way for confidential smart contracts that support computations on encrypted data. This unique ability paves the way for some extremely novel and unprecedented use cases that will make blockchain a lot more palatable for many users.&nbsp;</p>
<p>In a nutshell, FHE enables binary operations to be performed on encrypted data, without decrypting that information first. It’s a groundbreaking technology that has big implications for the future of confidential computing.&nbsp;</p>
<p>FHE has a number of advantages over ZK-Proofs, including its ability to compute encrypted data from multiple users at once. This makes FHE more composable than ZK-Proofs, so it can support more complex transactions involving multiple assets and networks. While ZK-proofs can be engineered to do the same, doing so is a lot of work.&nbsp;</p>
<p>Fact is, ZK-Proofs were primarily designed for simple tasks such as users proving a value without revealing it, but little work has been put into making them more useful. With FHE, we can handle much more complex transaction scenarios, making it ideal for applications such as secure MPC, machine learning and so on.&nbsp;</p>
<p>Last but not least, FHE supports universal applicability as it can be deployed across various use cases. ZK-Proofs are good for authentication, identity verification, transaction verification and scaling existing networks, but FHE can do so much more than this, enabling confidential, real-time data processing, secure cloud computing and privacy-preserving AI workloads.&nbsp;</p>
<h2 class="wp-block-heading" id="the-future-is-confidential">The Future Is Confidential&nbsp;</h2>
<p>Although ZK-Proofs are currently regarded as being more scalable, companies such as <a href="https://www.fhenix.io" target="_blank" rel="noopener noreferrer nofollow">Fhenix</a> are working hard to change this.&nbsp;</p>
<p>They’ve also made huge inroads in terms of making FHE more accessible, as the technology can be complex to implement. To get around this, Fhenix partnered with Zama to create a set of extensions for the Ethereum Virtual machine, called <a href="https://www.zama.ai/fhevm" target="_blank" rel="noopener noreferrer nofollow">fhEVM</a>. With this, developers can apply FHE Rollups to quickly craft customized application chains that integrate FHE directly with their decentralized applications.</p>
<p>As a result, developers now have a way to benefit from the advanced confidentiality provided by FHE without needing to learn anything new. They can simply crack on with their familiar Solidity-based tools to create an entirely private ecosystem around their dApps, blockchain games, DeFi applications, metaverse worlds or NFT projects.&nbsp;</p>
<p>Most likely, the future will see both ZK-Proofs and FHE co-exist, as both technologies are likely to find their place. However, FHE seems to be a more superior confidentiality solution overall, enabling blockchain data to remain fully encrypted no matter if it’s stored on the network, in transit or being used by an array of dApps.&nbsp;</p>
<p>This will dramatically reduce the number of attack vectors and eliminate many of the issues caused by blockhain’s transparent nature. Data privacy is a key consideration for many organizations, and FHE provides the technology to deliver it.&nbsp;</p>

The Lack of Confidentiality Is Blockchain’s Next Big Hurdle

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The Crypto Times

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