Fully Homomorphic Encryption (FHE) in blockchain enables privacy-preserving computations, allowing data to be processed without decryption. This ensures sensitive information, like financial transactions or identities, remains confidential, even during analysis. FHE supports privacy by shielding data from intermediaries and nodes, aligning with user demands for anonymity. However, regulatory compliance poses challenges, as authorities often require transparency for auditing or anti-money laundering (AML) purposes. FHE can balance this by integrating selective decryption mechanisms or zero-knowledge proofs, enabling regulators to access specific data under strict conditions without compromising the entire system's privacy. Challenges include computational overhead and key management complexity, but advancements in FHE efficiency are making it a viable solution for blockchain, harmonizing privacy with regulatory needs in decentralized ecosystems.