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Lack of confidentiality is Blockchain’s next big obstacle
Blockchain and the Web3 industry that is built on it have made great strides in trying to be ready for debut, particularly in terms of accessibility. For years, one of Web3’s biggest challenges has been the user experience problem, which has created dozens of roadblocks that have prevented all but the most stubborn people from trying to tackle it.
Interacting with Web3 apps was far from simple. 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 gas fees in the network’s native token.
However, the industry has managed to significantly simplify these tasks thanks to innovations such as account abstraction. With the advent of AA, developers can now create much more intuitive wallets, with Web2-style account creation and login methods, social recovery features, and streamlined transactions that only require one click. Additional innovations, such as paymasters, eliminate the need to maintain multiple token balances to pay gas fees.
Transparency is a problem
Many blockchain advocates can now argue that Web3’s usability challenges have largely been resolved, but another crucial issue remains that prevents the industry from becoming mainstream. Because blockchain remains extremely transparent by nature, meaning there is little to no privacy for its users.
Privacy and confidentiality are perhaps the most important problem that blockchain must overcome. Public blockchains like Ethereum often tout their transparency as a key selling point, but while it can be beneficial in many cases, it also creates many obstacles that make wider adoption impossible. For example, the lack of confidentiality in blockchain exposes sensitive transaction details that prevent many types of businesses from adopting cryptocurrencies for payments. If an organization’s finances are entirely public knowledge, including the identities of the companies and individuals it deals with and the amounts it pays and receives, there is simply no way it can adopt cryptocurrency, as this exposes it to competition and that probably means it will. do not comply with compliance standards.
To ensure full confidentiality in Web3, there needs to be a way to encrypt blockchain data.
What Does Privacy Bring to Blockchain?
Private Transactions:
The lack of confidentiality in blockchain transactions means that sensitive payment details are exposed to anyone interested in checking. 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. Additionally, fully encrypted transactions will help end the risk of unethical practices such as “front-running,” as malicious actors have no way of knowing which transactions should be prioritized. Additionally, confidential transactions ensure that organizations and users always remain compliant with local data protection regulations.
Chain rods:
Confidentiality will also benefit the on-chain auction process, which can improve NFT markets, token sales and governance processes. Users will be able to bid anonymously without revealing any details about themselves, making it impossible for anyone else to know who is looking to purchase the digital assets on offer.
transactions involving premium elements or significant financial decisions.
Anonymous vote:
Another benefit of confidentiality is on-chain voting processes, which are key to decentralized autonomous organizations or DAOs, consensus mechanisms, and so on. By allowing users to vote completely anonymously, any manipulation or coercion is prevented, meaning votes are freer and more democratic. It will also make votes more secure by preventing anyone from trying to study voter patterns to manipulate the democratic process. Of course, grades will also be more compliant.
Reserved game:
One of the least discussed beneficiaries of blockchain data encryption is the thriving Web3 gaming industry, where anonymity can bring significant benefits to players. Currently, blockchain transparency causes a number of problems. Users can analyze blockchain data to try to ascertain the identities and social media accounts of other players, expose their positions in real time, and analyze historical data to understand their strategy.
If gaming transactions became confidential, these benefits would disappear, making gaming much fairer while reducing the risk posed by phishing attacks to players.
Decentralized identities
Blockchain cryptography can help create DID harder. These protocols currently store sensitive and anonymized data off-chain and represent a tempting target for hackers. Greater privacy would give users better control over their personal data and the ability to selectively reveal certain identity attributes such as citizenship while obscuring everything else. It will also help with portability. Many DIDs are designed to work across multiple networks and the information within them is therefore portable. By encrypting this information, it becomes more secure as it travels across networks.
MEV prevention
MEV attacks they are made possible by the fact that pending transactions are visible on the chain via the blockchain’s mempool. Malicious validators can gain advantages through front-running and sandwich attacks to gain financial gain, such as paying lower gas rates by prioritizing their own transactions over those of another user. But if these transactions were all confidential, these opportunities would be eliminated completely.
The ZK tests are not enough
A lot of attention was paid zero-knowledge proofs or ZK-Proofs, and are often said to represent the future of blockchain.
ZK-Proofs are an intelligent encryption method that uses a cryptographic protocol to allow a user to prove knowledge of certain information, such as transaction details, without revealing the actual details of that knowledge. This technique has proven useful in many applications and is one of the most popular tools for enabling private blockchain transactions. For example, the popular privacy cryptocurrency Zcash uses ZK-Snarks (a form of ZK proof) to prove transactions are valid without showing anyone the details, allowing for completely anonymous transactions without the risk of double spending.
While they have many fans, ZK-Proofs are at a disadvantage because they cannot perform computations on encrypted data, which limits their usefulness. Furthermore, they are also known to be extremely resource-intensive, which raises questions about their scalability.
FHE FTW!
The alternative is an emerging technique called Fully homomorphic encryption or FHE, which paves the way for confidential smart contracts that support computations on encrypted data. This unique capability paves the way for some extremely new and unprecedented use cases that will make blockchain much more attractive to many users.
Simply put, FHE allows you to perform binary operations on encrypted data, without first decrypting that information. This is an innovative technology that has big implications for the future of confidential computing.
FHE has several advantages over ZK-Proofs, including the ability to process encrypted data from multiple users at the same time. This makes FHE more composable than ZK-Proofs, so it can support more complex transactions involving more resources and networks. While ZK trials can be designed to do the same, doing so requires a lot of work.
The fact is that ZK-Proofs were primarily designed for simple tasks such as users demonstrating value without revealing it, but little work has been done to make them more useful. With FHE we can handle much more complex transaction scenarios, making it ideal for applications like secure MPC, machine learning, etc.
Last but not least, FHE supports universal applicability as it can be deployed in various use cases. ZK proofs are useful for authentication, identity verification, transaction verification and scaling of existing networks, but FHE can do much more, enabling real-time, confidential data processing, cloud computing secure and privacy-preserving AI workloads.
The future is confidential
Although ZK-Proofs are currently considered more scalable, companies like Fenix they are working hard to change this situation.
They have also made great progress in making FHE more accessible, as the technology can be complex to implement. To get around this, Fhenix worked with Zama to create a series of extensions for the Ethereum virtual machine, called fhEVM. This way, developers can apply FHE Rollup to quickly create custom application chains that integrate FHE directly with their decentralized applications.
As a result, developers now have the ability to take advantage of the enhanced privacy provided by FHE without having to learn anything new. They can simply use their familiar Solidity-based tools to create a completely private ecosystem around their dApps, blockchain games, DeFi applications, metaverse worlds, or NFT projects.
Most likely, the future will see both ZK-Proofs and FHE co-existing, as both technologies will likely find their place. However, FHE appears to be a higher privacy solution overall, as it allows blockchain data to remain fully encrypted, regardless of whether it is stored on the network, in transit, or used by a number of dApps.
This will dramatically reduce the number of attack vectors and eliminate many of the problems caused by Blockhain’s transparent nature. Data privacy is a key consideration for many organizations and FHE provides the technology to ensure it.