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In today’s digital age, privacy plays a crucial role in safeguarding sensitive information across various online platforms. Whether it’s online transactions like Venmo or complex supply chains in enterprises, the confidentiality of data is key to maintaining its security. As the concept of web3 transitions into reality, the need for on-chain composable confidentiality emerges as a significant challenge hindering its widespread acceptance. While decentralization and transparency are fundamental principles of decentralized technologies, complete transparency may not be suitable for every industry.
Consider a scenario where you are playing poker on a transparent board, exposing your hand to all players. It’s clear that this lack of secrecy would compromise the essence of the game, where players rely on hidden information to strategize and outsmart their opponents. Therefore, developing poker decentralized applications on public blockchains with transparent transaction data would be impractical.
Confidentiality serves as a crucial enabler for various industries such as gaming, payments, identity verification, voting, and institutional finance. Without confidentiality, the full potential of decentralized applications (dapps) in these sectors would remain untapped. For example, user confidentiality is a top priority for individuals and institutions engaging in financial transactions. While cryptocurrencies offer enhanced reliability, they still lack the privacy features of traditional payment methods. On-chain confidentiality can facilitate private yet traceable transactions, addressing user concerns and complying with regulations like the European Union’s General Data Protection Regulation (GDPR).
Similarly, video games like multiplayer card games and RPGs rely on secrecy to maintain an engaging experience. Without confidentiality, blockchain platforms would struggle to host such games, limiting the variety of on-chain gaming options available.
Additionally, the binary authentication approach of blockchain networks poses challenges in areas such as voting, identity verification, and healthcare. Balancing the need for transparency and confidentiality presents a complex dilemma as the absolute transparency of blockchains may infringe on users’ data privacy rights, while complete confidentiality could encourage illicit activities like money laundering.
Current cryptographic methods like zero-knowledge proofs (ZKP) and trusted execution environments (TEEs) have limitations that hinder their effectiveness in providing on-chain confidentiality. Fully homomorphic encryption (FHE) emerges as a promising solution to address these challenges. Unlike traditional encryption protocols, FHE allows computations on encrypted data without decryption, ensuring the confidentiality of sensitive information throughout the process.
Although FHE technology is in its early stages and faces performance limitations, advancements in the field, such as FPGA chips, may enhance its capabilities. By incorporating FHE into web3 solutions, industries can comply with data privacy regulations and bolster security measures against potential threats like quantum computing.
In conclusion, addressing the confidentiality issue is crucial for the widespread adoption of decentralized technologies. Innovative cryptographic protocols like FHE can pave the way for a decentralized ecosystem that prioritizes user control over data while ensuring security and reliability.