The Myth of Anonymity
Ask a stranger on the street about Bitcoin or Ethereum, and they will likely tell you it is “anonymous” and “untraceable.”
Ask a developer, and they will tell you the exact opposite: Public blockchains are the most transparent databases in human history.
This is the “Glass Wallet” problem. If you pay a supplier using a public wallet, that supplier can look up your address and see your entire balance, transaction history, and other business partners. For global enterprises, this isn’t a feature; it’s a deal-breaker. No company wants to put its supply chain logic or payroll on a ledger that its competitors can audit in real-time.
Beyond ZK-Proofs: Why We Need FHE
Until recently, the industry thought Zero-Knowledge Proofs (ZKPs) were the silver bullet. ZKPs are fantastic for scalability (rollups) and proving simple facts (like “I am over 18”) without revealing data.
But ZKPs have a limitation: they are mostly about private inputs. They struggle with shared private state.
Imagine a game of Poker on the blockchain.
- With ZKP: I can prove I have a card, but it’s hard to calculate the winner without someone seeing the cards.
- With FHE: The smart contract itself can “hold” the cards in an encrypted state, shuffle them, and determine the winner without anyone (not even the node validators) seeing the hands.
This capability—computing on data that remains encrypted even to the computer running the contract—is what we call Confidential Smart Contracts.
Killing the MEV Monster
There is another massive benefit: Stopping Front-Running.
On Ethereum today, bots scan the “mempool” (the waiting room for transactions). If they see you are buying a large amount of a token, they jump in front of you, buy it first, and sell it to you at a higher price. This is called “Maximal Extractable Value” (MEV) and it costs users billions.
In an FHE-enabled blockchain, the transaction details are encrypted. The bots can’t see what you are trading or how much. They are flying blind. FHE effectively kills malicious MEV by restoring privacy to the transaction intent.
The New Wave: Fhenix, Inco, and Beyond
We are already seeing the first generation of FHE-powered blockchains emerging. Projects like Fhenix and Inco are building Layer-1 and Layer-2 solutions that bring this functionality to the Ethereum ecosystem.
The promise is simple but profound: The trustlessness of a blockchain, combined with the