The success of "King of Privacy" Signal: How should the FHE project create blood for itself?

The market is neither good nor bad, people's hearts are neither ancient nor modern, Meme lives but dies, FHE comes to Privasea.

With the launch of the KOL matrix, the re-education of the FHE track was completed in a trance, and the difference between FHE and ZK was re-remembered, and the combination of DID track and NFT was combined, but this was not important, because retail investors were concerned about Binance's brand effect, rectifying market makers, and optimizing Listing processes.

Not to mention, Privasea is a representative project of the FHE+DID+AI track invested by Binance. Today, I don’t plan to talk about how it combines it. It doesn’t matter.

 Image description: YZi invests in Privasea, Image source: CryptoRank

Crypto + AI is just wishful thinking, and FHE and DID are not today's hot topics. They can save up a piece to summon MKT, but just like Nillion and Arcium, they have not found their own PMF, except for tokens.

FHE track enters shock phase

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

The combination of ZK and L2/Rollup is not a need for privacy, but ZK is naturally suitable for "simple verification" scenarios. When L2/Rollup transmits information to L1, the mathematical proof after ZK can be confirmed without completely revealing the original content. This is also a technical feature of difficult calculation and easy verification, rather than L2 that can only be done by ZK technology, because the optimistic verification system can already be operated by economic design (challenge period).

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

Returning to the design of Privasea, everyone has the need to verify their identity while protecting privacy (DID). Of course, everyone has the need to protect privacy and data encryption when using AI, but this does not mean that everyone has the need to use FHE.

In fact, after Zama was born and received huge financing, FHE's adoption in the Crypto field has focused on the L2 application of ZK. Later, many similar products were born around Zama's TFHE algorithm library, and without exception, they were just a plus for a certain type of service.

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

Privacy products on the way—Signal

There are joys and sorrows. Although Privases is hard to say, Signal is really popular. At least now the US Department of Defense and Vice President Vance are in use. Compared with Telegram and WhatsApp, which both have E2EE (end-to-end encryption), Signal's end-to-end functions are default, and the latter two need to be manually set to turn on.

But now, at least the privacy product that should have been a centralized entity has been favored by centralized departments, and what it values ​​is its absolute security, which just proves the feasibility of privacy products.

It is more worth mentioning that Signal currently relies entirely on donations, and they do not want to transform into a new Meta or Google, but focus on maintaining itself and pushing the power of technology to the extreme.

Currently, it is estimated that Signal's annual operating expenses will be as high as US$50 million by 2025 (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.

 Image description: 2013 Signal expenditure composition, image source: @signalapp

Of the storage, server, registration fees and bandwidth, as well as additional expenditures in 2013, it was specifically $1.3 million, 2.9 million, 6 million, 2.8 million and 700,000 US dollars. With the growth of users and the surge in data volume, even if Signal does not permanently store user data, it still requires huge server and data storage fees. Whether these costs can be covered by donations is very difficult to predict.

If Signal can really be run by donation, its significance will not be less than the birth of Bitcoin. Previously, technology donations were donated by large companies to underlying Internet protocols or underlying facilities such as Linux and Rust. Never, a global C-end social product could be maintained by small donations from ordinary users.

Looking forward to a new history and optimistic about the implementation of privacy economics in Web2.

History won't end

Privases is just an introduction, which neither has in-depth analysis of the money-making effect nor has it analyzed its internal mechanism. It is still the same sentence, it really doesn't matter.

What is really worth thinking about is that ZK has successfully implemented the Crypto B-end, and end-to-end encryption social products can maintain operation for the C-end. They have all gone through their own infancy and entered the large-scale practical stage. What should FHE do?

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

Ultimately, the combination of FHE and Crypto is the most likely area of ​​privacy transactions. Only when the benefits of using privacy services are higher than the losses caused by complexity can FHE find its own shelter.

For example, the Dark Pool that Arcium was thinking about yesterday, has real demand for large-scale transfers and transactions, whether it is Hacker who does not want to cause fluctuations in the secondary market or takes special channels.

In the transaction path supported by FHE, no matter it is a 1 ETH transfer or a 1000 WBTC/USDT transaction, it cannot be "seeed". It can fundamentally avoid the MEV problem. This is more scientific than Binance's direct requirement that the BNB Chain node not allow MEV.

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

However, once the FHE L2 transaction is sent to the Ethereum main network, you will face a dilemma and retain the encryption characteristics. The other party seems to be a garbled code that cannot be solved, and the transaction cannot be judged. The encryption characteristics are removed. Congratulations, there is no need to use FHE encryption from the beginning.

How to solve it? The only way is that Ethereum directly supports FHE opcode from the consensus layer, which means that Ethereum has to be in a sense, which is equivalent to the difficulty of converting PoW to PoS, and is basically not operable.

This may not be an ideal transformation path, and FHE still needs to explore it on its own.

The only exception

If the Ethereum main network cannot be transformed, then guiding users to conduct dark pool and compliance privacy transactions (RailGun) is the only feasible implementation scenario. After the US government lifted sanctions on Tornado Cash, the institutional compliance-level dark pool seemed to have another light.

After Privasea, FHE was rarely used as a highlight of project financing. FHE-AI/ML/LLM has remained in the academic field. I firmly believe that blockchain originating from cryptography is still the most suitable hot spot for FHE to start a business.