• January 20, 2023, a blog post by Vitalik shows a need for privacy solutions.
• Blog hints at the solution for the “largest remaining challenge” privacy.
• It masks the public key with a “spending key.”

With the inception of cryptocurrency, privacy was majorly advertised as one of its key factors. But sadly, it remained a challenge at some levels. Now, Vitalik Buterin, Ethereum’s co-founder, shared something in a blog, describing a possible solution for the “largest remaining challenge” on Ethereum – privacy.

Was it Required?

Buterin acknowledged in a January 20 blog post the need for a privacy solution because all the information on a “public blockchain” becomes public by default. Later he arrived at the “stealth address” concept. It can potentially anonymize peer-to-peer transactions, Ethereum Name Services (ENS) registrations, and Non-Fungible Tokens (NFTs), thus protecting users.

How does it Work?

The blog explains the on-chain anonymous transactions between two parties. First, if a user is expecting to receive assets, has to generate and keep a “spending key,” which would be used to generate a stealth meta-address. This address will then be registered on ENS and passed onto the sender, who will perform cryptographic computations on the meta address to generate a stealth address belonging to the receiver.

Then, assets can be transferred by the sender to the receiver’s stealth address and publish a temporary key, confirming ownership of the stealth address with the receiver. Overall with every transaction, a new stealth address shall be generated.

Source: https://vitalik.eth.limo/general/2023/01/20/stealth.html

Buterin acknowledged the need for a “Diffie-Hellman key exchange” along with a “key building mechanism” to be implemented, ensuring the link between the stealth address and users’ meta address, which is publicly visible.

Is the concept new?

The research and development on Stealth addresses have been going on since 2014, giving hope to the market for a solution to address on-chain privacy issues. Although, only a few solutions have managed to hit the market so far.

Buterin previously discussed this concept in August 2022, where he dubbed stealth address a “low-tech approach” for remote transfer of ownership of ECR-721 tokens, better known as NFTs.

Buterin then explained that the proposed concept offers privacy differently than the US Office of Foreign Asset Control (OFAC) authorized Tornado Cash.

“Tornado Cash can hide transfers of mainstream fungible assets as ETH or major ERC20s, but it’s very weak to adding privacy to transfers of obscure ERC20s, and it cannot add privacy to NFT transfers at all.”

Offering some advice to the Web3 projects that are developing a solution, saying that, even today, the basic stealth addresses can be implemented and can significantly boost the practical user base of ETH.

Although some work is required at the wallet front to support the system, these stealth addresses may bring “longer-term usability concerns,” for example, social recovery issues, says Buterin.

“In the longer term, these problems can be solved, but the stealth address ecosystem of the long term is looking like one that would really heavily depend on zero-knowledge proofs.” – Vitalik Buterin.