FHE: How it works?

Imagine a world where crypto transactions and interactions occur entirely on the blockchain but shrouded in a cloak of impenetrable encryption – where sensitive data like financial information or NFT identities stay hidden, even while complex calculations and evaluations take place. This cryptographic utopia might sound like science fiction, but it’s inching closer, thanks to a fascinating technology called Fully Homomorphic Encryption (FHE).

While encryption protects data at rest and in transit, most breaches involve compromised IT services, where data is decrypted for processing. This creates a security gap despite the encryption measures. Organizations face a difficult choice: analyze large datasets and risk leaks, or limit insights by not pooling data.

Enter Homomorphic Encryption: Insights Without Decryption

Fully Homomorphic Encryption (FHE) offers a solution. This technology allows computations on encrypted data without decryption, enabling analysis without exposing the underlying information. This “third way” holds immense potential for organizations to gain valuable insights from data while maintaining robust security.

In simple terms, here’s how it works:

Imagine you have a locked box containing sensitive data. In traditional encryption, to process the data (e.g., perform calculations), you’d need to unlock the box, perform the operation, and then re-lock it. This means revealing the data, posing security risks.

FHE acts like a magic box. You can perform operations directly on the encrypted data inside the box without ever unlocking it! This allows computations on sensitive information while keeping it completely hidden.

How does this magic work? It involves complex math involving homomorphic encryption schemes. These schemes use intricate mathematical structures to “wrap” the data in multiple layers of encryption, allowing calculations to be performed on these layers without ever touching the actual data itself.

There are different types of homomorphic encryption:

• Partially homomorphic: Supports one operation (addition or multiplication) infinitely on encrypted data. Think adding addresses without revealing them!
• Somewhat homomorphic: Handles both addition and multiplication, but only a limited number of times. Imagine analyzing encrypted medical data without compromising privacy.
• Fully homomorphic (the powerhouse): Supports unlimited additions and multiplications on encrypted data. Useful for complex computations on sensitive information in the cloud.

FHE in the Crypto Space: A Game Changer?

The ability to manipulate encrypted data holds immense potential for the crypto world. Here are some exciting possibilities:

• Confidential smart contracts: Smart contracts are the self-executing agreements at the heart of DeFi and other blockchain applications. But they often expose sensitive data when executed. FHE can shield this information, enabling private transactions and calculations within the smart contract itself.
• Encrypted key signing: Cross-chain bridges that connect different blockchains are vulnerable to attacks. FHE offers a potential solution by enabling the use of encrypted keys for signing transactions on bridges, adding an extra layer of security and reducing the risk of compromises.
• Securely analyzing sensitive data: In the world of DeFi, analyzing on-chain data is crucial for informed decision-making. However, this often involves sharing or exposing individual data points. FHE allows for secure analysis of pooled data, offering valuable insights while safeguarding individual privacy.
• NFT auctions: Bid on a rare digital artwork without anyone knowing your maximum offer. FHE lets you encrypt your bid and perform calculations on it, ensuring only the winning bid is revealed.
• Real-world assets (RWAs): Invest in fractionalized ownership of real estate or artwork without exposing sensitive financial data. FHE allows secure calculations on encrypted ownership percentages, keeping your investments private.

FHE’s magic goes beyond individual transactions. It can unlock a myriad of new use cases on the blockchain, thanks to programmable privacy. That’s why Shib has partnered with Zama, an open-source cryptography company specializing in cutting-edge FHE solutions for blockchain and AI. These contracts, the backbone of DeFi, can now execute complex calculations on encrypted data, ensuring both confidentiality and transparency.

Imagine a smart contract that automatically distributes dividends to shareholders, but without revealing their holdings. With FHE, it’s possible.

FHE is still in its early stages, and like any powerful tool it comes with its own challenges. Its efficiency is still a work in progress. However, the potential rewards are immense, and the research community is actively tackling these hurdles.