White Star Capital Digital Asset Fund - newsletter #112
Buterin suggests stealth addresses to solve for on-chain privacy
Buterin suggests stealth addresses to solve for on-chain privacy
White Star Capital Digital Asset Fund - newsletter #112
By default, any transaction on a public blockchain is, well, public. In other words, using blockchain applications involves making everything from financial transactions to NFTs and soulbound tokens available for anyone to view. In Ethereum co-founder Vitalik Buterin’s opinion, this is one of the ‘largest remaining challenges’ in the Ethereum ecosystem. Whilst many potential solutions have been suggested and developed over the years, his recent blog post outlines one proposal in particular- stealth addresses. Such a system would allow users to generate cryptographically obfuscated public addresses in order to receive transfers in a private way. And in contrast to current privacy-preserving transfer mechanisms, stealth addresses could anonymise peer-to-peer transactions, NFT transfers, ENS registrations and more.
What are stealth addresses?
Say Bob wants to receive an asset from Alice with anonymity.
Firstly, he would need to generate a ‘spending key’ which is used to generate a stealth meta-address (which can be ENS registered). He then passes this onto Alice, who can perform a cryptographic computation on the meta-address to generate a stealth address, belonging to Bob. Buterin also suggested using ZK proofs to boost the privacy of the system and make it difficult to link the stealth addresses. The effect of this is that every time someone makes a transaction, they generate a new stealth address, making it difficult for anyone to track the transactions or determine who is sending/receiving assets. The purpose? User’s transactional history remains completely private.
How novel is this idea?
Stealth addresses have actually been touted as a solution to address the issue of on-chain privacy since about 2014. However, very few of the solutions that have developed have taken off. Monero, for example, uses stealth addresses. Other networks like Zcash, Dash, Verge, Navcoin, and PIVX all also use various implementations of the technology.
The biggest success of attaining transactional privacy was Tornado Cash which used cryptocurrency mixers, however they ended up facing regulatory backlash and was sanctioned by the US Treasury Department’s Office for Foreign Assets Control (OFAC) for potentially enabling illicit activities.
The future of stealth addresses
Buterin did not shy away from the potential problems with the stealth address solution, notably that, at least in the short term, ‘this costs a lot of gas, extra hundreds of thousands of gas just for a single transfer’.
But he remained optimistic that they could easily be implemented into the Ethereum network and that all that was required would be ‘some work on the wallet side to support them’, including moving toward a natively multi-address model and the ability to properly encrypt and decrypt the transaction data.
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