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Introduction

Blockchains are great for transparency, security and trust, but that transparency comes at a cost—everything is public. Every transaction, smart contract interaction, and account balance is out in the open, which isn’t ideal for things like finance, healthcare, or any use case that deal with sensitive data. Fully Homomorphic Encryption (FHE) fixes this. Instead of exposing raw data on-chain, FHE allows computations to happen directly on encrypted data. The blockchain never sees the actual inputs or outputs—only encrypted values—yet the results are still valid when decrypted by an authorized recipient. This means smart contracts can run just like they do now, but with built-in confidentiality—without compromising decentralization or security.

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The Blockchain Transparency Problem

Blockchain is often praised for its decentralization, immutability, and transparency—but transparency is a double-edged sword.

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Why Transparency is a Problem

In public blockchains like Ethereum, every transaction, smart contract interaction, and account balance is completely visible to anyone. This radical transparency, while crucial for establishing trust and enabling verification, creates significant privacy challenges. FHE solves this fundamental tradeoff by allowing data to remain fully encrypted while still maintaining the network’s ability to verify its accuracy and authenticity. This means sensitive information can be processed and validated without ever being exposed, combining the best of both worlds - bulletproof privacy with trustless verification. Real-world consequences of blockchain transparency:
✅ Front-running & MEV – Traders can analyze mempools and exploit pending transactions before they are executed.
✅ Confidentiality leaks – Sensitive financial transactions, payroll information, or business logic are exposed.
✅ Enterprise adoption hurdles – Companies are reluctant to use public blockchains if competitors can access proprietary data. These challenges can all be mitigated by using FHE in your smart contracts.

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What is FHE?

FHE is a cryptographic technique that allows computations to be performed on encrypted data without decrypting it. Most cryptographic techniques secure data only until it needs to be used—FHE keeps it hidden even while processing, preventing leaks at every step.

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How FHE Works

  1. A user encrypts their data into ciphertext.
  2. The blockchain performs computations directly on the ciphertext.
  3. The result remains encrypted and can only be decrypted by the authorized user.
The Holy Grail of Cryptography
  • Data remains private throughout the entire computation process.
  • Smart contracts can execute logic on encrypted inputs and return encrypted outputs.
  • Users control their data without relying on trusted third parties.