The Ethereum co-founder Vitalik Buterin has suggested a solution to guarantee privacy on blockchain transactions.

Every on-chain activity of a user is an open book for the public to analyze, as blockchain acts like a public ledger. If someone knows a user’s public address, they will get to know when and where the user spends their crypto. Hence, it is challenging to maintain privacy while interacting with blockchains, particularly public ones like Bitcoin and Ethereum.

Vitalik Buterin acknowledges this in a blog: An Incomplete Guide to Stealth Addresses. “One of the largest remaining challenges in the Ethereum ecosystem is privacy,” he says.

The Problems With the Current Workflow

Vitalik Buterin uses the example of two individuals, Alice and Bob, to explain the privacy issue with the current transaction system. Presently, Bob sends his wallet address directly or through the Ethereum Name Service (ENS) to Alice to receive assets. Alice then sends the assets to Bob’s wallet, and now he can spend and control the asset.

In the scenario mentioned above, anyone who knows Bob’s ENS registration or public address can see that he received some assets from Alice. But these transactions can be kept private with Vitalik Buterin’s stealth address system.

Vitalik Buterin Proposes on-Chain Privacy Through Stealth Address System

Vitalik defines a stealth address as “an address that can be generated by either Alice or Bob, but which can only be controlled by Bob.” The new workflow involves Bob generating a “spending key”  and using it to generate a stealth meta address.

Alice will then have to perform some computation on the stealth meta address, through which she can generate a stealth address. She can now send the transaction to the stealth address, which Bob can access through the spending key.

The new workflow of the stealth address system:

In a simplified manner: “Stealth addresses give the same privacy properties as Bob generating a fresh address for each transaction, but without requiring any interaction from Bob.” Earlier in Aug, Vitalik discussed this mechanism for private NFT ownership.

The protocols like Tornado Cash were only limited to providing privacy in the transactions of fungible assets. But Vitalik Buterin’s system also offers privacy for transactions involving non-fungible tokens (NFTs). Furthermore, due to sanctions, various regulatory challenges exist to using tools such as Tornado Cash.

The Challenges With Stealth Wallets

Ian Miers, a professor of security and applied cryptography, shares some problems with stealth addresses. The addresses, once generated, cannot be reused because it offers the same privacy as a fresh new email address.

Vitalik Buterin, too highlighted some problems with the implementation, like requiring “a lot of gas.” Further, he mentions some longer-term challenges, such as the difficulty of social recovery.

But, he concludes the blog with, “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.”

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