Ethereum co-founder Vitalik Buterin has shared a possible solution to what he describes as “the biggest remaining challenge” in Ethereum – privacy.
On the blog post on January 20, Buterin recognized the need to come up with privacy solutions because by default, all information that goes to the “public blockchain” is very public.
They then came up with the concept of “stealth addresses” – which they say can anonymize peer-to-peer transactions, nonfungible token transfers (NFTs), and Ethereum Name Service (ENS) registrations, protecting users.
An incomplete guide to stealth addresses:https://t.co/21Q18BrD30
— vitalik.eth (@VitalikButerin) January 20, 2023
In a blog post, Buterin explains how on-chain transactions can be done between two parties anonymously.
First, a user who wants to receive an asset will generate and store a “spending key” which is then used to generate a stealth meta-address.
This address – which can be registered in ENS – then forwarded to the sender who can perform cryptographic computations on the meta-address to generate a stealth address, which is the receiver.
The sender can then transfer assets to the recipient’s stealth address in addition to issuing a temporary key to confirm that the stealth address is the recipient.
The effect of this is that a new stealth address is created for each new transaction.
Buterin notes that a “Diffie-Hellman key exchange” in addition to a “key blinding mechanism” must be implemented to ensure that the link between the stealth address and the user’s meta address cannot be publicly viewed.
The co-founder of Ethereum added ZK-SNARKs – cryptographic proof technology with built-in privacy features – able to transfer funds to pay transaction fees.
But Buterin stressed that this could cause its own problems – at least in the short term – stating “a lot of gas, additional hundreds of thousands of gas just for one transfer.”
Stealth addresses have long been touted as a solution to the on-chain privacy problem, which is already there worked on since the beginning of 2014. But few solutions have been brought to market so far.
This is also not the first time Buterin has discussed the concept of stealth addresses in Ethereum.
In August 2022, he was dubbed address stealth as a “low-tech approach” for the anonymous transfer of ownership of ERC-721 tokens – otherwise known as NFTs.
The Ethereum co-founder explained that the proposed stealth address concept offers privacy in contrast to the current US Office of Foreign Assets Control. (OFAC)-Tornado Cash sanctions:
“Tornado Cash can hide the transfer of mainstream fungible assets such as ETH or mainstream ERC20s […] but it is too weak to improve privacy for obscure ERC20 transfers, and cannot improve privacy for NFT transfers.
Buterin offers some suggestions for Web3 projects that develop solutions:
“Basic stealth addresses can be implemented very quickly today, and could be an important boost to practical user privacy on Ethereum.”
“They need some work on the wallet side to support them. That said, it’s my opinion that wallets need to start moving to a more genuine multi-address model. […] for other privacy-related reasons,” he said
Buterin suggests that stealth addresses may introduce “long-term usability concerns,” such as social recovery issues. However, he believes the problem can be properly addressed in the long run:
“In the longer term, these problems can be solved, but the ecosystem of stealth addresses in the long term looks like it will be very dependent on zero-knowledge proofs,” he explained.