In today’s digital world, the need to decrypt data for computing tasks exposes it to security risks.
This is a significant problem in privacy-sensitive industries such as Web3, where decentralized applications and finance sometimes rely on both confidentiality and integrity in data processing to maintain trust and security in the chain.
Fully homomorphic encryption (FHE) offers a possible solution by allowing the processing of encrypted data without having to decrypt it first, thus maintaining confidentiality. These advances not only improve data security and privacy, but also increase the potential for secure data analytics and decentralized services.
Guy Itzhaki, CEO and co-founder of Fhenix, says that in the context of blockchain, FHE allows developers and users to determine which assets they want to keep privately and confidentially on-chain.
This means it will allow developers to “create a new set of use cases” and “pave the way for truly on-chain gaming, voting and auctions,” Itzahki said.
Read more: Encryption startup Fhenix raises $7 million for private computing
While there are some similarities between FHE and zero-knowledge (zk) technology, the main difference is that FHE technology can perform calculations on top of encrypted data without having to reveal or know the data points to obtain the end result.
Liam McDonald, head of growth at blockchain privacy startup Fairblock, explained that with zk technology, a prover converts necessary data into a secure code, called a polynomial commitment, to prove it is accurate.
“To do this, the data itself is converted into polynomial hashes and concatenated into a polynomial equation of the hashes representing the encoded data,” McDonald told Blockworks.
This comparison is then sent to a verifier, which determines whether the function is true. If the function is proven, a proof is generated, confirming that the information in it is correct.
Peyman Momeni, co-founder of Fairblock, said that while zk-proofs allow users to validate the accuracy of their data, they fall short in supporting computation on encrypted data, especially when it comes to merging private information from multiple users.
“Zk is more relevant for scalability with some degree of security and limited privacy applications such as shielded transfers, where FHE enables higher levels of data security when combined with use cases supported by the encryption features,” said Momeni.
FHE in practice
Combined with the benefits of the blockchain, FHE offers improved privacy, a core component missing from the existing blockchain ecosystem, says Kaal Dhairya, a Shiba Inu developer.
“Beyond true end-to-end encryption of data, this opens up a variety of use cases including supply chain/food chain to blockchain, private voting for DAOs, efficient prediction markets, on-chain casino games, hidden items on-chain games, and more much more,” said Dhairya.
Momeni notes that in most cases of crypto usage it is necessary to combine private inputs from multiple users, compute over them and decrypt the results, meaning there would be a ‘shared private state’.
“For example, in private governance or sealed budget auctions, all users encrypt their votes or bids. We perform on-chain computing on encrypted data and ultimately we need to decrypt the actual results,” he said. “In this case, we do not actually decode the individual bids/votes/transactions, but only the updated status or the result of the calculation.”
Read more: Fully homomorphic encryption packages are one step closer to reality
To ensure that no user has exclusive access, a system of multiple validators must share this decryption key and jointly decrypt the information at the right time.
According to Momeni, current FHE technologies face the technical hurdle of creating a decentralized system for managing these decryption keys. However, Fairblock is developing a solution with a decentralized key generation network, with the aim of making FHE technology more accessible and practical for developers and different platforms.
Different solutions for different privacy needs
It is worth noting that FHE is not the only privacy solution currently being developed on the blockchain; there are several other solutions that may be more beneficial to developers building different tools.
“There are different solutions with different tradeoffs, so we try to enable developers to use them properly without taking a cryptography course,” Momeni said.
Read more in our opinion section: Privacy is becoming mainstream
In the case of Fairblock, the company sees itself as comparable to Axelar, Eigenlayer or Celestia, where a network facilitates and accelerates other builders.
“Instead of cross-chain messaging, shared security and data availability, we abstract all the bandwidth overhead, onboarding and maintenance costs associated with running the network in a secure and decentralized manner,” he says.
The company recently rolled out its public testnet, which is designed for developers of select layer 2 networks to customize how they integrate encryption and decryption into applications. It currently allows users to leverage Identity-Based Encryption (IBE), Witness Encryption (WE) with the integration of fully homomorphic encryption still in development.