Recently, both the Bitcoin and Ethereum communities have been paying close attention to privacy. Zama, which develops fully homomorphic encryption (FHE) technology, has launched its testnet, and the mainnet is expected to follow soon. What changes will Zama bring to privacy in the crypto space? Let's discuss this briefly:
To put it simply, Zama is like giving Ethereum and other public blockchains a "super invisibility cloak," allowing users to transfer funds, lend, trade, buy and sell stocks, participate in prediction markets, etc., all on-chain with all data encrypted and invisible to everyone, not even the participating nodes. However, computations can still be performed, and verifications can still be publicly verified. It's similar to bringing the WeChat Pay experience to the blockchain, but with even greater privacy because even WeChat can't see your balance or transfer amounts. Vitalik no longer needs to worry about people seeing how much ETH he transfers each time.
Previous blockchains failed to achieve privacy for a simple reason: they were completely public, like a transparent glass house. How much money was in each address, who it was transferred to, and the amount transferred were all visible to the entire world. Because of this, institutions and companies were hesitant to invest real money. Zama's technology, Fully Homomorphic Encryption (FHE), is designed to solve this problem.
In short, Zama isn't a new blockchain, but rather a "privacy layer" superimposed on existing blockchains. Users can use privacy features without switching chains. This aligns with a point we've consistently emphasized: privacy shouldn't be a feature of a single chain, but rather an optional feature for all chains. The advantage of full-chain encryption is that encrypted data can still be directly computed (addition, subtraction, multiplication, and division) without decryption; furthermore, it offers high security and is resistant to quantum computing.
Zama's privacy computing technology has many applications. For example, if you transfer 1000 USDC to a friend, people can currently see the address to which you transferred the money and the amount transferred. With Zama, others can only see "someone transferred money," without seeing the amount or balance. This has a wide range of applications in the current DeFi field. For example, people participating in contracts on Lighter, lending on Aave, and trading on Uniswap are much harder to detect. DAO voting also has advantages; regardless of whether a user votes for or against, the result is public, but who voted is confidential.
Institutions have consistently expressed demand for putting assets like stocks on the blockchain, but they also have privacy concerns, especially regarding RWA (Real World Wide Web). The blockchaining of stocks, bonds, and funds has always posed privacy issues, and Zama's technology can address these concerns. Institutions don't want their activities to be exposed, and once this issue is resolved, the probability of large-scale blockchain deployment of traditional assets increases.
Another area where on-chain identity has remained underdeveloped is Zama's privacy technology, which could facilitate its widespread adoption. Specifically, on-chain identity can prove someone's adulthood, driver's license status, nationality, etc., without revealing ID card/passport numbers, thus addressing the current problem of identity theft. On-chain identity is more convenient than physical identity and is less likely to be lost, making it suitable for cross-border travelers.
For developers, they can still write code using the familiar Solidity. They only need to replace the ordinary "addition, subtraction, multiplication, and division" with the "encrypted version of addition, subtraction, multiplication, and division" provided by Zama. It is not complicated. After modifying a few lines of code, DeFi and voting can achieve privacy without needing to understand specific cryptography.
In short, it's somewhat like the internet upgrading from HTTP (plaintext) to HTTPS (encrypted transmission). Zama is attempting to upgrade the blockchain from being "completely transparent and naked" to being "cloaked in full encryption," which could help address the issue of large sums of money being put on-chain in RWA.
