Zama and FHE: Revolutionizing Blockchain Privacy

Zama: A Revolutionary Privacy Shield for Blockchain

Recently, both the Bitcoin and Ethereum communities have shown a growing interest in privacy. Zama, a company specializing in Fully Homomorphic Encryption (FHE) technology, has launched its testnet, with the mainnet expected to follow soon. What changes can Zama bring to the realm of privacy?

Think of Zama as a "super invisibility cloak" for Ethereum and other public blockchains. It allows users to make transfers, borrow, lend, trade, buy stocks, and participate in prediction markets on-chain with all data encrypted. No one can see this data, not even the nodes participating in the network. Yet, calculations can still be performed, and transactions can still be publicly verified.

It's akin to bringing the WeChat Pay experience to the chain, but with even greater privacy. Even WeChat can't see your balance and transfer amount. Previous blockchains couldn't achieve privacy because they were completely public. Every address, the amount of money in it, who the money is being sent to, and the amount are all visible to everyone. This made institutions and companies hesitant to use blockchains with their real-world assets.

Zama's technology, Fully Homomorphic Encryption (FHE), specifically addresses this problem. Simply put, Zama is not a new chain, but rather a "privacy layer" added on top of existing blockchains. Users can use privacy functions without switching chains. This aligns with our view that privacy should not be a separate chain, but an optional feature for all chains.

The advantage of Fully Homomorphic Encryption is that calculations (addition, subtraction, multiplication, and division) can be performed directly on encrypted data without decrypting it. Furthermore, it has a high level of security and is resistant to quantum computing.

Privacy-Preserving Computing Applications of Zama's Technology

Zama's applications are extensive. For example, when you transfer 1000 USDC to a friend, others can see the address you sent the money to and the amount. With Zama, others will only see that "someone made a transfer," without seeing the amount or balance. This has significant implications for DeFi. It will be harder for others to discover users participating in contracts on Lighter, borrowing on Aave, and trading on Uniswap. It is also beneficial for DAO voting. The results can be public, but the identity of the voters can be kept secret.

Institutions have long expressed interest in putting stocks and other assets on-chain, but there are concerns about privacy, particularly regarding Real World Assets (RWA). There have always been privacy issues with putting stocks, bonds, and funds on-chain. Zama's technology can alleviate institutions' concerns. Institutions don't want to reveal their activities. Once this problem is solved, the likelihood of traditional assets being put on-chain on a large scale increases.

On-chain identity is another area that has not fully developed. Zama's privacy technology could help with the widespread adoption of on-chain identity. Specifically, on-chain identity can prove that someone is an adult/has a driver's license/has a certain nationality without revealing their ID/passport number, solving the problem of identity being easily misused. On-chain identity is more convenient than offline physical identity and cannot be lost, making it suitable for international travelers.

For developers, they can continue to write code in the familiar Solidity language. They only need to replace the ordinary arithmetic operations with the "encrypted version" provided by Zama, which is not complicated. After changing a few lines of code, privacy can be achieved in DeFi and voting without understanding the specific cryptography.

In summary, it's similar to upgrading the internet from HTTP (plaintext) to HTTPS (encrypted transmission). Zama seeks to upgrade the blockchain from "completely naked running" to wearing a "fully encrypted invisibility cloak," which helps to facilitate the placement of large sums of money on-chain through Real World Assets (RWA).