Homomorphic encryption and smart contracts can perfectly combine the characteristics of private and public blockchains

Bitcoin and transparency go hand in hand. While we cannot describe centralized exchanges and trading platforms in the same way, the Bitcoin protocol is completely transparent while also providing a certain degree of anonymity. However, as technology has advanced, we now have completely different use cases for blockchain. Bitcoin's underlying blockchain technology has become more than just a public ledger for storing Bitcoin transactions.

Global banks and financial institutions are currently exploring blockchain technology applications extensively. Many smart contracts are built using the Bitcoin blockchain and Ethereum. The increase in Bitcoin blockchain applications and use cases also requires the introduction of specific features suitable for specific industries.

As for the banking sector, they do not like public blockchains because through public blockchains, anyone can view their ledgers. In this case, private blockchains can not only facilitate the industry but also drive adoption.

Ethereum may have a solution as it includes both smart contracts and homomorphic encryption.

What is Homomorphic Encryption?

Homomorphic encryption is a method of performing computations without first decrypting the encrypted data. It provides a much-needed way to use blockchain technology on an existing basis. Using homomorphic encryption to store data on a blockchain achieves a perfect balance without causing any significant changes to the properties of the blockchain. In other words, the blockchain is still a public blockchain. However, the data on the blockchain will be encrypted, thus taking into account the privacy issues of the public blockchain, and homomorphic encryption technology gives the public blockchain the privacy effects of a private blockchain.

Homomorphic encryption not only provides privacy protection, it also allows encrypted data on the public blockchain to be accessed at any time for auditing or other purposes. In other words, using homomorphic encryption to store data on a public blockchain will be able to provide the best of both public and private blockchains.

Private blockchains are still in the exploratory stage. Currently, projects like R3 and the Linux Foundation's Hyperledger Project are conducting research. R3 recently announced the launch of their private distributed ledger Corda for their banking consortium. Corda is built specifically for banks and financial institutions and is currently in the experimental stage.

Ethereum smart contracts using homomorphic encryption can provide similar features and greater control, while retaining the benefits of Ethereum intact.

As Kobi Gurkan of Shield128 blockchain security platform explains, one use case for homomorphic encryption on the blockchain: Using homomorphic encryption, Ethereum smart contracts can be used to manage employee expenses. In this use case, if employees do not want their peers to know their expenses, they can encrypt their expense details and send them to the smart contract. The encrypted expense information is then added to the total expenses. Finally, when the company accounting department wants to analyze the expenses, the final smart contract can be decrypted locally to break down the total expenses in detail. This has the same effect as a public ledger, but only the final institution can see the expense details, and other users can only see some encrypted entries.

Ethereum and blockchain technology offer endless possibilities, providing multiple approaches to the same goal. It all depends on the developer.

Original: http://www.newsbtc.com
Author: Gautham
Compiled by: Kyle
Source (translation): Babbitt Information (http://www.8btc.com/homomorphic-encryption-and-smart-contracts)