About Scout Article: The Scout Article is a series by Four Pillars that aims to identify promising early-stage blockchain projects through active research and monitoring of emerging sectors. Four Pillars' researchers continuously scout different fields to uncover new and innovative blockchain projects that have not yet received widespread coverage from other firms. Projects featured in the Scout Report are expected to demonstrate novel ideas or narratives. Each month, selected projects identified through an internal voting process among researchers will be included in that month's official Scout Report publication. This provides paid subscribers with early access to blockchain opportunities with future potential.*

1. Fhenix - Bringing FHE to All Blockchains

“Fhenix is at the forefront of secure and private computing in the blockchain industry. They achieve this by utilizing cutting-edge tools such as fhEVM and ensuring compatibility with blockchain technology.” by xpara

Fhenix is the first blockchain powered by fully homomorphic encryption. Its goal is to bring Computation Over Encrypted Data to Ethereum Virtual Machine (EVM) smart contracts. Fully homomorphic encryption allows computations to be performed on encrypted data, producing encrypted output that, when decrypted, matches the results of operations performed on the plain text. This capability could enable innovative applications that require private or sensitive data to be processed through smart contracts.

To better understand Fhenix, let's explore what Fully Homomorphic Encryption (FHE) is and what it means for blockchain, as well as the current landscape of blockchain related FHE.

1.1 The Potential of FHE for Blockchain

Blockchain originated with Bitcoin to enable permissionless digital assets. Ethereum expanded on this concept by introducing smart contracts, which enabled the development of decentralized applications. However, challenges still exist regarding privacy and extensibility. Extensibility refers to the ability to compute and utilize other sensitive data within the blockchain.

Current blockchains operate in an open manner, supporting permissionless use but sacrificing privacy and security. Cryptographic techniques like multiparty computation (MPC) and zero-knowledge proofs (ZK) partially address these issues.

Fully homomorphic encryption (FHE) presents an important cryptographic approach to further solving blockchain challenges. As a technique allowing computation on encrypted data, FHE could enhance privacy, and extensibility.

1.1.1 How FHE Works

FHE allows computations to be performed on encrypted data without decrypting it first. This enables "confidential computing," where data remains encrypted at all times. FHE removes opportunities for data breaches during decryption/re-encryption.

1.1.2 FHE Use Cases for Blockchain

Some potential uses of Fully Homomorphic Encryption (FHE) for blockchain include:

• Enhancing Data Confidentiality on Blockchain: FHE allows data stored on blockchain to be encrypted, allowing it to be verified without being decrypted. This enables building decentralized identity platforms where encrypted user identity data can be securely stored and verified while maintaining privacy.

• Secure Computation of Off-chain Data: FHE allows sensitive off-chain data like patient health records to be computed on while remaining encrypted, protecting privacy during processes like healthcare data onboarding.

• Simplifying Cross-chain Interoperability: FHE can be used to store private keys across different blockchains, reducing complexity in bridging blockchains. For example, a private key for Chain B could be stored encrypted on Chain A, and vice versa.

• Improving Cryptocurrency Governance: Currently votes on cryptocurrency governance proposals are public from the start, but FHE could enable encrypted on-chain voting to reduce voter bias and allow more private participation.

• Enabling Confidential Transactions: FHE permits transactions to be computed on while encrypted, ensuring privacy and security of sensitive financial information while still providing transparency of the blockchain. This allows for confidential cryptocurrency transactions.

1.1.3 Why FHE in Blockchain:

• Blockchain applications frequently perform integer operations to manage contract state and other functions, which maps well to the types of computations supported by FHE.

• FHE allows for computations and analysis of encrypted data contributed by multiple users simultaneously, unlike zero-knowledge proofs which are limited to individual inputs/outputs.

• FHE, combined with EVM, like fhEVM, can be integrated into existing blockchain platforms like Ethereum without requiring blockchain developers to have expertise in advanced cryptography.

• As a homomorphic encryption scheme, FHE has universal applicability for complex privacy-preserving calculations across many domains - making it suitable for a wide range of blockchain applications.

FHE represents a major technological advancement that can help address key challenges in blockchain related to privacy and scalability as the FHE technique matures. It is well-positioned to help resolve privacy and data sharing limitations facing blockchain.

1.2 Current Landscape of FHE in Blockchain

However, both FHE technology itself and Fhenix are still in the early stages. Just a year ago, this technology was believed to be only accessible after extensive research spanning many years. However, the development of the technology appears to be progressing at a faster pace, and it is anticipated that simple use cases will emerge in production in the coming years.

Let's explore other projects currently attempting to leverage FHE in the blockchain space.

1.2.1 Research

• FHE.org (Website, Twitter) - This is a general research organization that gathers researchers who specialize in Fully Homomorphic Encryption (FHE). Additionally, it offers numerous presentations related to blockchain.

• Zama (Website, Twitter) - Zama has been a leader in the field of Fully Homomorphic Encryption (FHE) implementation for AI and blockchain. It has developed fhEVM and numerous other tools for utilizing FHE.

• Zengo (Website, Twitter, Paper) - The company is a blockchain wallet company that has conducted extensive research in cryptography. They have been the leading research team in cryptography within the blockchain ecosystem.

1.2.2 Early Stage Projects

• Fhenix (Website, Twitter) - Fhenix enables secure Computation Over Encrypted Data for EVM by leveraging FHE, and by providing simple integration to other blockchains.

• Inco Network (Website, Twitter)- It is an EVM Layer-1, utilizing fully homomorphic encryption (FHE) to enable composable and operable confidential states. It also leverages fhEVM like Fhenix. Telegram chat that discusses the fhEVM use case is useful

• Privasea (Website, Twitter)- It helps clients worldwide to have customized data sharing and computing solutions that are compliant with security measurements yet enable them to utilize all their data, even sensitive type.

• Sunscreen (Website, Twitter) - It is building a FHE SDK to help developers utilize FHE in blockchain applications.

• Elusiv (Website, Twitter) - Elusiv is building a privacy layer for decentralized applications using secure multi-party computation (MPC) and FHE. FHE allows computations to be performed directly on encrypted data without decrypting it first. Elusiv implements an MPC protocol in two phases. In the preprocessing phase, parties encrypt their private inputs under an FHE scheme. In the online computation phase, the parties evaluate functions on the encrypted inputs using FHE's homomorphic properties. This allows privacy-preserving computations across decentralized applications involving multiple parties.

• GPUnet (Website, Twitter) - GPU.Net is a decentralized platform that aims to address the shortage and high costs of GPU availability. It does this by connecting idle GPU resources from providers to consumers through a tokenized marketplace. The platform utilizes FHE to allow GPU computations on encrypted data, ensuring complete data privacy and security, even when processing is performed on third-party GPUs through the network.

1.2.3 Hackathon Projects and Ideas

• SherLOCKED (Link)- SherLOCKED is a framework that aims to provide privacy-preserving transactions on the blockchain through encryption of data at the network, SDK, and smart contract levels.

• FRAMED (Website, Twitter)- Framed, a social game built on the Inco Network platform, takes inspiration from the popular Mafia game. It utilizes FHE to prioritize privacy on the blockchain, enabling hidden roles, secret schemes, accusations, and strategic thinking.

• Implementing FHE to Optimism (Link)- This proposal aims to explore the use of FHE in the OP protocol to enhance privacy in transactions and interactions with L1s.

1.3 More About Fhenix

Fhenix is currently in its early stages and is known for utilizing ZAMA's fhEVM to enhance accessibility within the blockchain ecosystem. Recently, it secured $7.5M in funding on September 26, 2023, led by Multicoin.

Fhenix is one of the most supported teams in the FHE blockchain landscape. Its objective is to expand the functionality of fhEVM and facilitate seamless integration with other blockchains, serving as a confidential computation layer.

Developers with proficiency in EVM smart contract skills and tools can utilize them when building on the Fhenix blockchain. Solidity, the widely used smart contract programming language, remains compatible for contract development on Fhenix. Furthermore, Fhenix supports EVM developers without necessitating knowledge of other languages or FHE cryptography.

An early proof-of-stake Fhenix testnet was launched as a layer-1 blockchain to validate the core functionality. However, the official Fhenix testnet will integrate the functionality as a layer-2 scaling solution built on top of Ethereum. This allows Fhenix to benefit from Ethereum's existing ecosystem while focusing on its unique encrypted computation capabilities.

The long-term vision for Fhenix is to establish itself as a natural extension to Ethereum, providing support for encrypted computation in smart contracts. If successful, it aims to seamlessly integrate with Ethereum, allowing smart contracts to leverage encrypted operations without developers needing to migrate away from the Ethereum platform.

1.4 Future: Four Pillars’ Thoughts

1.4.1 Steve

The transparency inherent in blockchain technology offers numerous advantages from a service provider's perspective. Being based on open-source principles, it allows intelligent creators to come together and create interesting and captivating products. However, from a user's standpoint, this transparency might be perceived more as a disadvantage than an advantage. To seamlessly onboard users accustomed to Web 2.0 services to blockchain-based applications, it's essential to offer an experience similar to Web 2.0 but with added benefits.

What many people overlook is that the default setting in Web 2.0 was to ensure privacy between users. Of course, there were significant issues in Web 2.0 where platform companies could access users' personal information at any time. Still, by default, privacy between users was maximally protected. On the other hand, blockchain doesn't inherently offer this user-to-user privacy, making cryptographic methods to safeguard personal information absolutely indispensable.

While technologies like Zero-Knowledge Proofs (ZK) are being used to establish on-chain privacy, they have clear technical limitations. Therefore, it's encouraging to see efforts to protect sensitive information using fourth-generation cryptography like homomorphic encryption.

Amidst the plethora of blockchains with similar features and specifications, Fhenix stands out due to its novel approach and characteristics. It's worth watching Fhenix's future developments, and even if not Fhenix, it's crucial to keep a close eye on future attempts to use homomorphic encryption to safeguard user credentials.

1.4.2 Jay

While a certain amount of openness is necessary to form relationships with others and participate in society, it is also very important to protect one's privacy so that one's personal information is not abused. In other words, openness and privacy are complementary, and we have been struggling to maintain a good balance between them.

However, with the observed potential to encapsulate privacy in data on the network while still being a trusted and open system, blockchain is expected to solve many parts of this dilemma.

While the use case scenarios will vary greatly, I personally see this approach as a great fit, especially in terms of strengthening ‘identity'. This is because identity is an open feature that enables a wide range of economic and social interactions, but at the same time, privacy is crucial to ensure that it is not abused or stolen - indeed, we have already observed that since the introduction of the first web, various identity models have been applied to the web, leading to an explosion of interactions and creating the digital-innovation-society we have today.

While ZK, which is currently the most actively experimented with, is a great cryptographic complement to blockchain, FHE has a key difference in that it allows for direct computation on encrypted data, which may make it more viable in terms of applications and distributed computing.

Starting with these projects, it is almost certain that there will be many more attempts to utilize FHE.

2. Other Notable Projects

2.1 Beam

"Beam brings full suite of community-driven products that seamlessly connect gamers and developers.” by Moyed

In the ever-evolving world of business, every entity aims to control its vertical. The question arises: will Merit Circle seize full control over the onchain gaming supply chain? Originally starting as a guild, Merit Circle has since transitioned, launching 'Beam', a community-driven blockchain and ecosystem tailored for both gamers and developers. Implemented as a Avalanche subnet, the Merit Circle DAO Token ($MC) serves as the native currency within the Beam network. In addition to the chain, Merit Circle has unveiled several noteworthy products included in the Beam ecosystem.

• Beam Companion allows gamers to easily manage multiple in-game accounts within the Beam ecosystem from their mobile devices.

• With the BeamSDK, including Sphere, games can seamlessly integrate on-chain elements.

• Beam Hub serves as a platform where gamers can discover projects within the Beam ecosystem, participate in tournaments, or view game-related content.

• BeamOS, as the name suggests, consolidates and presents all Beam-related services in one place.

2.2 Orange Protocol

“Orange Protocol's portable and holistic reputation system will make it easier than ever to move seamlessly between the real and digital worlds, making our lives more enjoyable and convenient.” by Jay

Reputation is a record of information, usually from a trusted third party, that objectively attests to the achievement of certain activities or accomplishments, which determines our credibility and value and thus enables a wide range of interactions in all accessible spaces. As IT technologies become more sophisticated and many economic and social activities become possible in the digital space, the need for a system to identify individuals and score their reputation in an online context is becoming increasingly important.

By aggregating data from both traditional digital and on-chain spaces to create a reputation scoring system, Orange Protocol not only overcomes the rigidity of existing reputation systems, but also expands the power of reputation to enable more diverse and new interactions.

On-chain data (e.g., transaction data, asset information, and smart contracts) and off-chain data (e.g., gaming, IoT data, credentials and government-issued IDs, financial and social data) can be aggregated into a single reputation data, which can then be combined with DID & VC to strengthen an individual's identity across physical and digital spaces. Meanwhile, dApp builders as well as end-users can leverage the Orange Protocol by building and sharing reputation models via middleware to create their own programmable reputations or tie them to specific services.

Orange Protocol will enable a wide range of use cases across the real world, existing digital spaces, and on-chain, including more diversified credentialing, asset management, customer segmentation, reputation-based voting, and identity-based fully contextual experiences, etc.

2.3 Xion

“Xion aims to directly address the reasons why users have not been onboarded to the blockchain until now. Through Xion, we hope to onboard many non-crypto natives to the blockchain.” by Steve

Lately, there's a growing trend in blockchain infrastructure focused on how to onboard users to blockchain more easily. Efforts like Sui's zkLogin, which aimed to seamlessly onboard users from Web 2.0 credentials to Web 3.0, align with this trend. Particularly, the issue of transaction fees has been a significant barrier. Each blockchain has its own set of assets that can be used to pay fees, and the prices of these assets fluctuate continuously. As a result, users often find it challenging to engage with blockchain systems.

To address this, Xion has chosen to accept one of the most popular stablecoins, USDC, as a transaction fee. This move is intended to lower the barriers to entry when it comes to fee payments. Furthermore, all asset prices implemented on the Xion blockchain are anticipated to be pegged to stablecoins.

In essence, the Xion blockchain emphasizes ease of use, even for those with no prior knowledge of blockchain and crypto assets.

Additionally, Xion plans to develop an infrastructure that will allow easy access to its blockchain via mobile environments, providing an even more user-friendly experience.

Thanks to Kate for designing the graphics for this article.