Disclosure: The views and opinions expressed herein are solely those of the author and do not represent the views and opinions of crypto.news editorial.
Confidentiality is ingrained in our online interactions today, keeping sensitive information private and secure. From online payments like Venmo to corporate supply chains, many aspects of the digital world rely on the confidentiality of data. As web3 evolves from concept to reality, the need for on-chain configurable confidentiality remains a significant barrier to widespread adoption of Web3. Decentralization and transparency are core principles of decentralized technology, but absolute transparency does not apply to all industries.
Imagine playing poker on a transparent board with your hands exposed for everyone to see. It’s not fair, right? Poker is a game in which players rely on the secrecy of their cards and the unpredictable nature of the game to strategize and deceive their opponents. Therefore, it is impossible to develop a poker decentralized application on a public blockchain where all transaction data is transparent.
Confidentiality unlocks the potential of web3.
Therefore, industries such as gaming, payments, identity verification, voting, and institutional finance rely on confidentiality to function effectively. Without it, many potential uses of dapps would remain unexplored.
For example, user confidentiality is a top concern for individual and institutional users when conducting financial transactions. Cryptocurrencies offer improved platform stability but still lack the privacy of traditional payment methods. At the same time, blockchain as a value layer cannot be used for mass adoption if it is fully transparent. You don’t want your family and co-workers to know how much you make, and you don’t want your neighbors or people with bad intentions to know how much money you have. This is because in cryptocurrency there is a risk of being targeted. On-chain confidentiality can unlock private yet traceable transactions, solving user concerns and complying with regulations such as the European Union’s General Data Protection Regulation (GDPR).
Likewise, video games, including multiplayer card games, combat arena games, and strategy RPGs, require the secrecy of certain game elements to maintain an interesting and challenging experience. Without implementing confidentiality, blockchain platforms would not be able to host such games, severely limiting the on-chain game library.
In addition to these two issues, the “all-or-nothing” authentication approach of blockchain networks hinders adoption in cases such as voting, identity verification, and healthcare.
Confidentiality issues and confidentiality dilemmas
Introducing confidentiality during the transition to web3 also presents complex dilemmas. Meanwhile, the absolute transparency of blockchains and distributed ledgers may interfere with users’ fundamental rights to data privacy. On the other hand, complete confidentiality can create tempting opportunities for illegal activities such as money laundering and fraud. Striking the right balance between these two competing interests could potentially lead to much wider global adoption of web3 and decentralized technologies.
The open source nature of public blockchains like Bitcoin and Ethereum makes all data available to anyone with access to the internet. While this increases the trust and accountability of the platform, it may also expose transaction data and cause problems such as privacy infringement.
In fact, sensitive data such as transaction information, medical records, and identity information can be easily stolen and shared without an appropriate layer of security. This creates the potential for unwarranted public scrutiny and crimes such as identity theft and identity piracy. However, complete privacy and complete anonymous transactions can also be exploited by malicious users for criminal activities.
Money laundering, tax evasion and terrorist financing are risks that can arise from completely anonymous transactions as the lack of specific transaction details makes it more difficult for regulators to monitor and enforce compliance.
Challenges of current encryption methods
The blockchain industry has already begun work to integrate confidentiality into protocols, but current cryptographic methods such as zero-knowledge proof (ZKP) and trusted execution environments (TEE) have limitations that limit the usefulness or effectiveness of on-chain configurable confidentiality. There are restrictions. .
Zero-knowledge proof Allows one party to prove to another party that a statement is true without disclosing information beyond the validity of the statement. These protocols have been successfully implemented in various blockchain applications to provide transaction privacy. However, it faces challenges in scenarios involving multiple parties, making it unsuitable for Dapps that require complex calculations. Moreover, integrating these protocols requires specialized knowledge and tools, creating an additional barrier for small businesses and individual users.
Trusted Execution Environment It is used to run applications separately from the operating system, providing a secure environment in which the applications can perform confidential computations. This increases the security of your applications and their data. The use of this encryption technology extends beyond the blockchain industry as it is widely used in industries such as mobile payments and cloud computing. However, TEEs are still vulnerable to side-channel attacks that can potentially leak sensitive information. This vulnerability compromises the overall security of the platform.
Fully homomorphic encryption: a solution for on-chain confidentiality
Among the blockchain industry’s ongoing efforts to develop optimal solutions for on-chain confidentiality, fully homomorphic encryption (FHE) is attracting attention as a promising technology. Unlike traditional encryption protocols designed to protect data in transit or at rest, FHE can compute encrypted data without decryption.
As a result, FHE’s approach to cryptography is ideal for providing on-chain configurable confidentiality for dapps and web3 protocols. This allows calculations and manipulation of encrypted data without having to decrypt it, ensuring the confidentiality of sensitive information throughout the entire process.
Moreover, while the transparent nature of blockchain can be buggy as past transactions must be verifiable, FHE is fully crypto-based and deterministic, meaning anyone can replay and verify the integrity of the computation.
With FHE, developers can now create complex multi-party applications on blockchain platforms, from decentralized private social media platforms to healthcare data management systems. This expands the usefulness and appeal of web3 technology, reaching a more diverse user base and driving adoption across a variety of use cases mentioned above, such as voting, identity verification, supply chain, payments, gaming, and more.
Nonetheless, it is important to note that FHE technology is still in its infancy and currently faces performance limitations, especially in terms of processing speed. The computational requirements of FHE operations are much higher than those of traditional cryptography techniques. However, this may soon change as advancements come to the market, particularly with the development of Field-Programmable Gate Array (FPGA) chips specifically designed for these computations.
Additionally, web3 solutions with FHE can enable industries with stringent data security requirements and compliance with data privacy and crime prevention regulations. Unlike most standard cryptography methodologies, FHE provides theoretically unbreakable security and has also proven resilient to future quantum computing technologies.
final thoughts
Confidentiality is the missing link in web3, and addressing this critical issue is essential to drive adoption and unlock the full potential of decentralized technology. Only by establishing complete privacy and security for sensitive information can the blockchain industry attract universal fields such as healthcare, finance, banking, and entertainment.
New cryptographic protocols, such as fully homomorphic encryption, can create decentralized ecosystems that give users control over their data without compromising the security and reliability of the digital ledger.
