Privacy tools have always been heralded as a key to financial freedom in the crypto industry. In the Ethereum ecosystem, discussions surrounding the subject matter have revolved mostly around privacy-preserving transfers of ETH and mainstream ERC20 tokens.
In a bid to improve the state of privacy on the network, its co-founder Vitalik Buterin has proposed a stealth address system.
The concept of Stealth addresses using elliptic curve cryptography was first introduced in the context of Bitcoin by BTC core developer Peter Todd in 2014 to obscure transaction details. In the latest blog post, Buterin acknowledged that privacy is “one of the largest remaining challenges in the Ethereum ecosystem” while highlighting the need for a privacy solution because “anything that goes onto a public blockchain is public.”
Stealth addresses, on the other hand, can help in this regard. Buterin noted that such a mechanism in place will enable the Ethereum wallet to generate stealth addresses to receive funds privately and access them using a special code called a “spending key.”
The proposed stealth addresses can be generated by either party, but they can only be controlled by one of them. The user receiving the assets generates the stealth address and keeps secret a spending key, which will then be used to generate a stealth meta-address that can be passed on to the sender.
This allows the sender to perform a computation on this meta-address to initiate a stealth address belonging to the receiver. The sender can then send any assets they want to send to this address, while the receiver will have full control. Along with the transfer, the sender publishes some extra cryptographic data on-chain confirming that the stealth address belongs to the receiver.
Buterin asserted that stealth addresses give the same privacy properties as a user generating a fresh address for each transaction.
Several methods have been employed in recent years to obfuscate transactional details. This includes Tornado Cash which was recently sanctioned by the OFAC. Buterin, for one, said the proposed concept of stealth address provides a different kind of privacy to that of the popular Ethereum-based coin mixer. He explained,
“Tornado Cash can hide transfers of mainstream fungible assets such as ETH or major ERC20s (though it’s most easily useful for privately sending to yourself), but it’s very weak at adding privacy to transfers of obscure ERC20s, and it cannot add privacy to NFT transfers at all.”
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