Programmable Privacy and Onchain Compliance using Homomorphic Encryption

The text discusses a proposed solution for "Compliant Programmable Privacy" in blockchain using homomorphic encryption and the fhEVM confidential smart contract protocol. This approach allows computations on encrypted states without involving cryptography from the developer's perspective, maintaining onchain data and computation for composability and data availability. It introduces identity abstraction via onchain, confidential Decentralized Identifiers (DIDs), managed by a registry contract, where a central authority can create registrars to manage user DIDs. The regulation contract enforces compliance through a set of rules for token transfers based on encrypted identity attributes, with compliance ensured at the contract level rather than the user level. A compliant confidential ERC20 contract is described, where user balances and transfer amounts are encrypted, and compliance is enforced using the regulation contract. The text emphasizes that compliance and privacy can coexist, and while the proposed design is not perfect, it presents a potential real-world application for programmable compliance without surveillance.