The Lack of Confidentiality Is Blockchain’s Next Big Hurdle

This text discusses the importance of confidentiality in reducing the risk posed to players in blockchain-based applications, specifically in the context of phishing attacks. The text introduces Decentralized Identities (DIDs) and their current security vulnerabilities, as well as the potential benefits of encrypting DID data for greater confidentiality and portability.

As a blockchain and Web3 industry analyst, I’ve witnessed significant progress in overcoming the challenges that have hindered the mass adoption of these technologies. One of the most daunting obstacles has been enhancing user experience, which created numerous barriers that deterred even the most determined individuals from engaging with it. To put it simply, we needed to make Web3 more accessible and intuitive for a broader audience.

Engaging with Web3 applications was once a intricate process filled with numerous challenges. The requirements were vast, involving setting up a digital wallet, dealing with multiple blockchain networks, generating and safeguarding a 12-word recovery phrase, signing transactions, and paying gas fees using the network’s native token.

In the industry’s advancement, tasks have become significantly easier to manage due to innovations like account abstraction (AA). AA has brought about the creation of wallets that boast user-friendly interfaces, featuring Web2-style account registration and login procedures, social recovery options, and streamlined transactions that only necessitate a solitary click. Additionally, forthcoming developments, such as paymasters, eliminate the requirement for maintaining various token balances to cover gas fees.

Transparency Is A Problem

Blockchain technology, which is widely embraced by many advocates, has made significant strides in addressing usability issues related to Web3. However, a formidable challenge persists that threatens to hinder the mainstream adoption of this industry: the lack of privacy for its users. Despite being inherently transparent, blockchain technology currently offers minimal confidentiality protections.

Blockchain’s most significant challenge is ensuring privacy and confidentiality. Transparency, a key feature of public blockchains like Ethereum, can be beneficial in numerous situations. However, it also poses obstacles to broader adoption due to the exposure of sensitive transaction data. This issue precludes many businesses from utilizing crypto for transactions. For instance, if an organization’s financial information is publicly available, including the identities of the companies and individuals it interacts with and the transaction amounts, it cannot adopt cryptocurrency because of the risk of being exposed to competitors and potential non-compliance with regulations.

To enable full confidentiality in Web3, there needs to be a way to encrypt blockchain data. 

What Does Confidentiality Bring To Blockchain?

Private transactions:

As a blockchain analyst, I would emphasize that the transparency of blockchain transactions poses a risk to the confidentiality of sensitive payment details. However, by implementing encryption for blockchain transaction data, we can ensure the privacy of each participant and shield the transaction amounts from public view. This added layer of security makes confidential transactions virtually tamper-proof. Furthermore, encrypted transactions help eliminate unethical practices like front-running as malicious actors cannot discern which transactions to target. Lastly, confidential transactions enable organizations and users to adhere to local data protection regulations while maintaining the benefits of blockchain technology.

On-chain auctions: 

 transactions involving premium items or significant financial decisions.

Anonymous voting: 

One advantage of maintaining confidentiality in blockchain systems is its significance for decentralized autonomous organizations (DAOs), consensus mechanisms, and similar structures. By ensuring anonymous voting, it eliminates the potential for coercion or manipulation, thereby promoting freer and more democratic decision-making processes. Moreover, confidentiality adds an extra layer of security by concealing voter patterns from those who might attempt to manipulate the democratic process. Consequently, votes will be both more compliant with privacy regulations and less susceptible to external influence.

Confidential gaming: 

As a data analyst in the Web3 games industry, I’ve noticed an intriguing aspect of blockchain technology that often goes unmentioned: the advantages it brings to anonymous play. The transparency of blockchain data is a double-edged sword for this burgeoning sector. On one hand, it provides security and fairness, but on the other, it can lead to unwanted attention and potential privacy invasions.

As a crypto investor involved in gaming, I can tell you that one potential advantage of transparency in game transactions could disappear if they were made confidential. This is because confidential transactions make games significantly fairer for all players. However, it also means that the risk of phishing attacks, which are a common tactic used to steal sensitive information, would be reduced. In simpler terms, keeping game transactions private ensures a level playing field and protects us from potential cyber threats.

Decentralized identities

The encryption offered by blockchain technology can enhance the security of Decentralized Identifiers (DIDs). At present, these protocols keep sensitive, de-identified data outside the chain, which poses an attractive threat for cybercriminals. By boosting privacy, users would have greater command over their personal information, enabling them to reveal select identity traits while concealing others. This feature will also facilitate seamless transition between networks as many DIDs are intended to function across multiple platforms. Consequently, encrypting the data renders it more secure during its travel across networks.

MEV Prevention

MEV (Minimum Value Extraction) attacks take advantage of the transparency of on-chain pending transactions in the blockchain’s mempool. Malicious validators can exploit this visibility to execute front-running and sandwich attacks, allowing them to make profits by prioritizing their transactions at the expense of other users. However, if these transactions were kept confidential, it would effectively put an end to such opportunities.

ZK-Proofs Aren’t Enough 

Zero-knowledge proofs, or ZK-Proofs, have garnered significant interest lately and are frequently hailed as the next big thing in the world of blockchain technology.

As a researcher in the field of cryptography, I’m excited about the innovative approach of Zero-Knowledge Proofs (ZK-Proofs). This encryption method allows one party to confirm possession of specific information, such as transaction details, without disclosing the actual content. The beauty of ZK-Proofs lies in their widespread applicability and popularity in enabling private transactions on blockchains. For instance, Zcash, a well-known privacy cryptocurrency, employs ZK-Snarks (a type of ZK-Proof) to verify transactions’ validity without revealing sensitive data, ensuring complete anonymity and eliminating the risk of double-spending.

Despite having a large following, ZK-Proofs face limitations due to their inability to perform computations on encrypted data. This feature hinders their applicability. Furthermore, they carry a reputation for being highly resource-consuming, sparking concerns about their capacity to handle larger scales.


As a crypto investor, I’m always on the lookout for innovative technologies that can enhance the security and functionality of our beloved blockchain. One such exciting development is Fully Homomorphic Encryption (FHE). This emerging technique allows confidential smart contracts to perform computations directly on encrypted data without decrypting it first.

As a data security analyst, I can explain that Fully Homomorphic Encryption (FHE) is a revolutionary technique enabling computations to be carried out directly on encrypted data without prior decryption. This capability holds significant promise for the advancement of confidential computing, allowing sensitive information to remain encrypted throughout complex calculations.

One way to rephrase this in clear and natural language: Fully Homomorphic Encryption (FHE) holds several advantages over Zero-Knowledge Proofs (ZK-Proofs). For instance, FHE allows for the computation of encrypted data from multiple sources simultaneously. This feature makes FHE more versatile than ZK-Proofs as it can facilitate intricate transactions involving numerous assets and networks. Although ZK-Proofs can be adapted to achieve similar results, the process is quite laborious.

As an analyst, I’ve observed that ZK-Proofs were initially engineered for straightforward tasks like allowing users to prove a value without disclosing it. However, there’s been limited exploration in expanding their functionality. On the other hand, Functional Encryption (FHE) offers a more comprehensive solution for handling intricate transaction scenarios. This makes it particularly suited for advanced applications such as secure Multi-Party Computation and machine learning.

In summary, Fully Homomorphic Encryption (FHE) is versatile and can be applied to numerous scenarios. While Zero-Knowledge Proofs excel in authentication, identity verification, transaction verification, and network expansion, FHE goes beyond these functions by providing confidential data processing in real time, ensuring secure cloud computing, and facilitating privacy-preserving AI projects.

The Future Is Confidential 

As a crypto investor, I’ve noticed that ZK-Proofs are commonly believed to offer better scalability in the blockchain world. However, there’s an ongoing effort from companies like Fenix to challenge this notion and improve the scalability of other proof systems.

As a crypto investor, I’ve noticed that Fhenix has made significant strides in making Functionally Homomorphic Encryption (FHE) more approachable for the masses. The technology itself can be intricate and challenging to implement. To tackle this issue head-on, Fhenix joined forces with Zama to develop a series of extensions for the Ethereum Virtual Machine, which they’ve named fhEVM. By utilizing these extensions, developers can effortlessly incorporate FHE Rollups into their customized application chains and seamlessly integrate FHE within their decentralized applications.

Developers can now utilize the advanced confidentiality offered by Fully Homomorphic Encryption (FHE) without requiring any additional learning. They can continue using their go-to Solidity tools to construct private environments for their dApps, blockchain games, DeFi applications, metaverse projects, or NFT initiatives.

It’s highly plausible that ZK-Proofs and Fully Homomorphic Encryption (FHE) will coexist in the future as they each have unique applications. However, FHE stands out as a more robust solution for ensuring confidentiality since it allows blockchain data to remain encrypted regardless of its location or usage by various dApps.

“FHE technology significantly decreases potential attack points and addresses numerous concerns arising from blockchain’s transparency. Given data privacy is a significant concern for numerous organizations, FHE offers the solution.”

Read More

2024-05-11 14:45