Privasea: The end of the FHE track

The market is neither good nor bad, people's hearts are neither ancient nor modern, Memes are born and die, and FHE comes to Privasea.

With the launch of the KOL matrix, I have completed the re-education of the FHE track in a trance, and I have re-remembered the difference between FHE and ZK, and the combination of the DID track and NFT, but none of this is important, because retail investors are concerned about Binance's brand effect, regulating market makers, and optimizing the Listing process.

Not to mention, Privasea is a representative project of the FHE+DID+AI track invested by Binance. Today, I don't intend to elaborate on how it is combined. It's not important.

Crypto + AI are just wishful thinking, and FHE and DID are not hot spots today. If you save them together, you can summon MKT magic, but like Nillion and Arcium, they have not found their own PMF, except for tokens.

The FHE track has entered a shock phase

I am not saying that there is a problem with FHE technology, but that the projects on the FHE track in this cycle, including but not limited to Zama and Inco, have not explored the application paradigm in the Crypto field. I must repeat my previous point of view:

The combination of ZK and L2/Rollup is not a need for privacy, but ZK is naturally suitable for the "simple verification" scenario. When L2/Rollup transmits information to L1, the mathematical proof encrypted by ZK can be confirmed without fully revealing the original content. This is also the so-called difficult to calculate and easy to verify technical feature, rather than L2 can only be done with ZK technology, because the optimistic verification system can be operated using economic design (challenge period).

This is the real PMF of ZK technology in the Crypto field, which helps L2/Rollup to run more efficiently and securely. When we re-examine DID/TEE/FHE and Crypto + AI, you will find that apart from tokens, the products themselves do not have many usage scenarios and value. Even for the ZK hardware track, it is difficult to say whether it can develop in the future.

Returning to Privasea's solution design, everyone certainly has the need to verify their identity while protecting privacy (DID), and everyone certainly has the need for privacy protection and data encryption when using AI, but this does not mean that everyone has the need to use FHE.

In fact, since the birth of Zama and the huge amount of financing it received, the adoption of FHE in the Crypto field has focused on replicating ZK's L2 applications. Subsequently, many similar products were born around Zama's TFHE algorithm library. Without exception, they are just extras to a certain type of service.

Privacy is a Feature/Service, But Not a Product.

Privacy products on the way - Signal

There are both good and bad news. Although Privases is not a surprise, Signal is really popular. At least now the US Department of Defense and Vice President Vance are using it. Compared with Telegram and WhatsApp, which both have E2EE (end-to-end encryption), Signal's end-to-end function is the default, while the latter two need manual settings to turn it on.

But now, at least privacy products that should have been centralized entities have been favored by centralized departments. It is their absolute security that they value, which just proves the feasibility of privacy products.

What's more worth mentioning is that Signal currently relies entirely on donations to operate, and they do not hope to transform into a new Meta or Google, but focus on maintaining their own operations and pushing the power of technology to the extreme.

Currently, it is estimated that by 2025, Signal's annual operating expenses will be as high as 50 million US dollars (estimated in 2023). For other types of products, the increase in user data will be synonymous with advertising revenue, but for Signal, it means a surge in server costs.

In 2013, the amounts of storage, servers, registration fees and bandwidth, as well as additional expenses, were specifically US$1.3 million, US$2.9 million, US$6 million, US$2.8 million and US$700,000. Among them, with the growth of users and the surge in data volume, even if Signal It will not store user data permanently, and it will also require huge server and data storage costs. It is very difficult to predict whether these costs can be covered by donations.

If Signal can really run on donations, its significance will not be less than the birth of Bitcoin. Before this, technical donations were made by large companies to the underlying Internet protocols or underlying facilities such as Linux and Rust. There has never been a global C-end social product that can be maintained by small donations from ordinary users.

Look forward to new history and be optimistic about the implementation of privacy economics in Web2.

History will not end

Privases is just an introduction. There is no in-depth analysis of the money-making effect, nor an analysis of its internal mechanism. Again, it is really not important.

What is really worth thinking about is that ZK has been successfully implemented for the B-side of Crypto, and end-to-end encrypted social products can maintain operation for the C-side. They have all passed their embryonic stage and entered the stage of large-scale practical use. What should FHE do?

FHE may not be the next step for ZK, but it is unlikely that FHE is not the next step for ZK.

In the final analysis, the combination of FHE and Crypto is most likely to be in the field of private transactions. Only when the benefits of using private services are higher than the losses caused by complexity, can FHE find its own place to live.

For example, the Dark Pool that Arcium was thinking about yesterday, the main body of large transfers and transactions, whether it is those who do not want to cause fluctuations in the secondary market or hackers who have to go through special channels, all have real needs for this.

In the transaction path supported by FHE, whether it is a transfer of 1 ETH or a transaction of 1000 WBTC/USDT, it cannot be "seen", which can fundamentally avoid the MEV problem, which is more scientific than Binance directly requiring BNB Chain nodes not to allow MEV.

Of course, if it were that simple, then Zama would have started a business in this direction long ago, and who would bother to work on L2/Rollup? The biggest problem with FHE privacy transactions is that they cannot guarantee "identity". For example, if you trade on the FHE L2 chain, then you can indeed be private end-to-end.

But once the FHE L2 transaction is sent to the Ethereum mainnet, it will face a dilemma. If you keep the encryption feature, the other party will see it as an undecipherable garbled code and will not be able to judge the transaction. If you remove the encryption feature, congratulations, then there is no need to use FHE encryption from the beginning.

How to solve it? The only way is for Ethereum to natively support FHE opcodes directly from the consensus layer, which means that Ethereum will have to be modified to a certain extent, which is equivalent to the difficulty of converting PoW to PoS, and it is basically not operable.

This may not be the ideal transformation path, and FHE still needs to conduct its own exploration.

The only exception

If the Ethereum mainnet cannot be transformed, then guiding users to conduct dark pool-type and compliant privacy transactions (RailGun) is the only feasible landing scenario. After the US government lifted sanctions on Tornado Cash, institutional compliance-level dark pools seem to have a glimmer of light.

After Privasea, FHE is rarely used as a highlight of project financing. FHE-AI/ML/LLM remain in the academic field. I firmly believe that blockchain, which originates from cryptography, is still the most suitable hotbed for FHE entrepreneurship.

Previous recommendations:

Arcium's past and present: Solana enters privacy 2.0

Great secrecy, written before Nillion's coin issuance

The best opportunity for Flip Binance is 2022, followed by now

In the final stage of crypto VC, what did YZi invest in

Zuoye Waiboshan

A 95s who is all in Web 3

London Economics->Strategic Consulting->Venture CapitalInvestment->International Payment->Web 3.0 Entrepreneurship

Twitter: https://twitter.com/zuoyeweb3

YouTube: https://www.youtube.com/@zuoyeweb3

bilibili：https://space.bilibili.com/450302178