Analysis of FHE Homomorphic Encryption Technology: Expanding the Imagination of Crypto Privacy Transactions

After listening to the Epicenter podcast’s interview with the CEO of ZAMA, I was anxious about the lack of brain capacity again. To put it simply, FHE is a more advanced encryption technology than ZKP zero-knowledge proof, which can achieve data privacy transmission in a wider range, such as cloud storage, gene prediction, biometrics, crypto privacy transactions, etc. It just so happens that VC has also paid special attention to FHE recently, so let’s briefly talk about my understanding:

1. FHE stands for (Fully homomophic Encryption), which allows people to perform operations on specific forms of encrypted data without having to decrypt and expose data privacy. It is a technical concept in the broader context of the Internet, which has been around for a long time, and has recently attracted attention in the Crypto field mainly due to the integration of FHE functions into Ethereum by Fhenix Network and the launch of the fhEVM solution. Any developer can add FHE functionality to the transaction flow in the form of a pre-compile binary.

2. What kind of imagination space will this release?For example, in the game scene, the cards in the player’s hand can be operated by the platform to promote the game without being exposed, so as to promote the “fairness” of such games; In the DAO voting scenario, giant whales can participate in governance voting without revealing their voting numbers, but will not affect the voting results output of the protocol.

In the private transaction scenario, users can send fully encrypted transactions to the mempool without revealing their private information such as the transaction amount, and in the regulatory compliance scenario, goverment can monitor transactions involving the overseas flow of funds, and deduct assets involving blacklisted addresses without viewing legitimate transactions. The imagination space is one step larger than that of the ZKP;

3. What is the difference between FHE and ZKP? Simply understood, ZKP solves the problem of consistent transmission in the state of data encryption, and the submitting data can prove the authenticity of the data to the receiving data under the premise of hiding the specific data, which is a point-to-point encryption scheme, especially the lightweight zk-SNARKS has been widely used in layer2 rollup;

FHE, on the other hand, is to solve the problem of recomputation in the state of encrypted data transmission, which is a many-to-many broader encryption scheme. The reason why it is not so widespread is that it consumes a lot of computing power and is inefficient in the process.

4. ZAMA has established the fhEVM solution, which can allow FHE to be applied to the blockchain field, and Phenix network modularizes FHE into a precompiled process to add more blockchain paths in a similar way to SDK embedding integration, but it is currently more suitable for OP-rollup, and even can set up a pipeline to load FHE functions only for specific transactions.

This means that users can choose whether to initiate transactions through FHE on layer2 to protect their privacy, which is a little higher than the nature transaction fee, but has more security and privacy. This is bound to attract some MM market makers as well as institutional users who are concerned about private trading.

The requirements and scenarios have been connected, and the key lies in the comprehensive tradeoff of efficiency and performance as well as costs.

Personally, I believe that privacy trading will be the next refined trend track after the transaction expansion problem. At present, the core of the expansion problem is no longer infra technology, but the necessary conditions such as mass adoption, such as regulation and market, are lacking, and privacy transactions are optimized through technical infra to further subdivide users, transactions and usage scenarios, and to some extent, there will be a wide range of applications similar to ZKP technology.

We can imagine that with the blessing of FHE technology, the gap of DEX and CEX transaction experience has been reduced, some layer3 privacy application chains can have a more closed-loop and secure transaction experience, some games can solve the security problems that exist randomly on the chain, and even supervision can be more compliant and not overly interfere with the form of intervention. The imagination space is large enough, but now the TPS is really low, and the level of 2-5 TXS per second can barely approach the level of the EVM mainnet, and it still needs a long way to reach the rollup 10,000-level transaction processing capacity.