Fully Homomorphic Encryption: The New Frontier of Privacy and Security in Blockchain

Fully homomorphic encryption ( FHE ) is a major breakthrough in the field of encryption, allowing for computations on encrypted data without the need for decryption. This concept can be traced back to the 1970s, but it wasn't until Craig Gentry's groundbreaking work in 2009 that it became possible.

The core feature of FHE is homomorphism, meaning that operations on ciphertext are equivalent to performing the same operations on plaintext. It supports unlimited additions and multiplications, making it a powerful form of encryption. However, FHE also faces challenges in noise management and computational efficiency.

In the field of Blockchain, FHE is expected to resolve the contradiction between transparency and privacy. It can transform a completely transparent Blockchain into a partially encrypted form while retaining control of smart contracts. This provides new possibilities for applications such as encryption payments and gaming, while maintaining the traceability of transactions.

FHE can also improve the user experience of existing privacy projects through private message retrieval (OMR). Although FHE itself cannot directly address scalability issues, combining it with zero-knowledge proofs (ZKP) may lead to breakthroughs.

Currently, the development of FHE lags behind ZKP by about 3-4 years, but progress is rapid. The first generation of FHE projects has begun testing, and the mainnet is expected to launch later this year. Although the computational overhead is still high, with technological advancements, FHE is expected to grow as rapidly as ZK Rollups.

The main challenges faced by FHE include computational efficiency and key management. The computational intensity of bootstrapping operations is being alleviated through algorithm improvements and engineering optimizations. In terms of key management, threshold key management systems still need further development to overcome single points of failure.

The FHE market has attracted significant attention from venture capital. Several projects such as Arcium, Cysic, Zama, Sunscreen, Octra, Fhenix, Mind Network, and Inco Network are developing FHE solutions that cover various aspects including hardware acceleration, compilers, and Blockchain integration.

The regulatory environment's attitude towards FHE varies across different regions. While data privacy is generally supported, financial privacy remains a contentious topic. FHE has the potential to enhance data privacy protection while preserving social benefits such as targeted advertising.

Looking to the future, FHE is expected to make significant progress in the next 3-5 years. With ongoing improvements in theory, software, hardware, and algorithms, FHE is transitioning from the research stage to practical applications, promising to bring revolutionary changes to the Blockchain ecosystem.