Despite its radical potential, there is an obvious, fundamental flaw to the world of Decentralized Finance (DeFi): its radical transparency. All trades, all balances, all operations are made public on an LEDGER which can be viewed by the world. This is its strength as it forms the basis of its security and auditability but is also its weak point. It opens up predator behaviors such as Miner Extractable Value (MEV), in which the bots front-run your trades to make a profit. It makes the financial plans of the users vulnerable to competitors and sensitive financial transactions, such as payroll management or corporate treasury management, completely impossible to execute on-chain. Hemi is addressing this paradox by directly confronting it with a technology that is so futuristic it seems like a sci-fi occurrence: a blockchain that will allow fully encrypted and programmable transactions. Hemi is creating a world where you can engage with DeFi protocols, vote in DAOs and manage assets in full privacy releasing the last frontier of on-chain finance.
Hemi runs on the groundbreaking field of cryptography. Although certain implementation details remain the jealously-guarded aspect of their unique architecture, the idea is based on such technologies as Fully Homomorphic Encryption (FHE) or secure Multi-Party Computation (MPC) as a protocol-level technology. Let's demystify this. Suppose you have a box full of valuable document which has a lock. You would like a third party to work with that document (e.g. count the words) without having to look at what is in it. FHE is cryptographic analogue of a special glovebox that lets one to operate the document inside the locked glovebox without seeing it. Hemi uses this principle on blockchain transactions. It enables the nodes in the network to calculate and authenticate transactions on encrypted data without ever decryption of any form. The encrypted inputs are the inputs, the encrypted encrypted state and the encrypted outputs are the outputs. It is only the user who has the private key that will be able to see the real details.
It is an earth-shattering advancement in comparison with the current privacy solutions. Coins such as Monero or Zcash are privacy coins that are good at hiding the sender, recipient and value of a basic transaction. Yet, they are not as programmable as to support complicated DeFi applications. The privacy solutions at layer-2 usually involve relocating money to a dedicated and isolated pool, which is cumbersome and complicated. Hemi, in its turn, considers privacy as an intrinsic part of its smart contract layer, which is EVM-friendly. It implies that developers can construct and deploy known Solidity smart contracts, but the state is default encrypted. This is what the difference between a privacy feature and a privacy-native blockchain is.
We shall see into the revolutionary uses this opens. Take an example of a Decentralized Exchange (DEX) that is constructed on Hemi. Nowadays when you place a trade on a trading DEX, the mempool shows your order immediately to MEV bots. They are able to imitate your trade, to make their own order in front of yours (front-running), and to make a profit at the price slippage they generate you. Trade information, including the asset, the funds, the price limit, etc. would be encrypted on a Hemi-based DEX. The bots would observe that a transaction is underway but they would not know what the transaction is. This entirely kills front-running and sandwich attacks, which produce a more equitable and efficient trading platform to all. It refunds billions of dollars of worth on predatory bots to regular users.
And consider on-chain lending and borrowing. An individual may be reluctant to borrow a significant sum of money on a publicly available DeFi protocol due to the fact that it would indicate his/her financial status to the whole market. A big fund that is looking to use its NFT collection as security would have its entire portfolio put at risk. On Hemi, a user had an opportunity to borrow using their encrypted assets. The smart contract would be able to check that the encrypted collateral is adequate to meet the encrypted loan amount, and none of the specific assets and their value would ever be disclosed. Such a degree of confidentiality is necessary in enticing institutional capital and high-net-worth people to DeFi, as they cannot work in the glaring light of complete visibility.
The Hemi blockchain architecture is carefully worked out to give a balance between the privacy and performance. The encryption of all computations is a heavy task. The design of Hemi is probably a new consensus algorithm and a dedicated node design that is more efficient in these cryptographic functions. It keeps the execution of encrypted computations uncoupled with the consensus and data availability layers, and each of the parts can be scaled. Such a modular solution is essential to the development of a network not just private, but able to support the high throughput necessary to support mainstream GameFi and DeFi applications. It is aimed at making working with a private dApp as easy as with a transparent one.
The future of Hemi will be probably linked to two main directions, which are the creation of a developer ecosystem and the broadening of the cryptographic toolset. The main problem the team faces is to ensure the process of building the private applications is as simple as possible to the developers. This includes the development of comprehensive documentation, SDKs used by developers, as well as demonstration of a library of so called killer apps, which can only exist on an encrypted blockchain. Additionally, with the further development of cryptographic studies, Hemi can integrate additional and more effective privacy-preserving technologies, expanding the possibilities and the work of the network once again. The lifeblood of this ecosystem will be the native token, $HEMI, which is used to compensate the computational cost of encrypted transactions, serve as stakes to secure the network, and control the development of this privacy-first-only program.
To sum up, Hemi is not any other Layer-1 blockchain. It is the solution to one of the oldest and the most significant issues in the Web3 space. It is the missing key to the puzzle that will enable the DeFi to evolve out of a niche, transparent ecosystem into a global financial system capable of competing with traditional finance on its own conditions (privacy, security, user sovereignty), and it is its core. This is opening a novel set of applications and uses that we are still only beginning to dream of by turning privacy into a programmable, native feature of Hemi. It is creating the new generation of the internet value layer which is silent, secure, and confidential.