Ethereum is a popular asset and blockchain, but many people think that privacy is a concern. Co-founder Vitalik Buterin has some new ideas about privacy and Ethereum.
Ethereum (ETH) co-founder Vitalik Buterin has proposed a new solution to one of the most pressing issues facing the Ethereum blockchain: privacy.
in a blog post Released on Jan. 20, Buterin detailed the concept of “stealth addresses,” which could offer a way to anonymize peer-to-peer transactions, non-fungible token transfers (NFTs), and Ethereum Name Service (ENS) records, by protect user data.
Buterin noted that by default, all information that is placed on a public blockchain is public; however, the use of hidden addresses could provide users with greater privacy. Let’s learn how.
How do hidden addresses improve privacy?
Hidden addresses are a great way to keep your financial transactions on the blockchain anonymous from any prying eyes. A stealth address allows two parties to exchange funds without revealing their identity on the blockchain.
Simply put, it allows people to conduct private transactions on the blockchain. It’s like sending money without revealing who you’re sending it to!
When a sender initiates a transaction, the stealth address takes their payment and redirects the funds to an address only the recipient knows. This prevents anyone else from seeing the transaction or the movement of money.
Think of stealth address as a digital envelope where the recipient is the only one who can open it and see the funds, always. To give you a better understanding of how it works, here is an example.
Let’s say John wants to send a payment to Robert. John sends the funds to Robert’s hidden address instead of sending them directly to a normal address he controls. Robert’s wallet automatically generates a different hidden address for each payment he receives to ensure the complete privacy of his transactions.
So John’s transaction is private instead of repeatedly broadcasting the same address and making it public like a normal transaction.
Eventually Robert ends up with the money as his wallet is the only one with access to the new address. But no one else can see where the money came from or where it went due to stealthy technology.
This is how, through stealth addresses, on-chain transactions can be carried out between two parties with complete anonymity and privacy.
Privacy Coins’ Troubled Relationship With Regulators
Privacy coins, such as Monero (XMR), are a type of cryptocurrency specifically designed to protect the financial privacy of their users (similar to address blinds).
Its popularity has grown in recent years, especially as the use of public blockchains and cryptocurrency addresses has become easier to trace. This has raised many concerns among regulators, who are concerned that these coins are being used for money laundering, tax evasion, and other criminal activities.
Many regulators have already taken steps to limit or ban the use of privacy coins, citing concerns that they make it difficult to track transactions and comply with regulations.
In the US, for example, the Treasury Secretary has urged banks and money services companies to avoid handling digital assets that do not comply with anti-money laundering laws or lack customer identification protocols.
Despite regulatory concerns, privacy coins remain popular with users who value their financial privacy. New technologies are being developed to improve the privacy of user information and make it easier for regulators to identify and track suspicious transactions.
However, it is likely that regulators will be able to control the use of privacy coins once laws are put in place to clearly define their use and the associated regulatory penalties.
The way forward for Ethereum
In conclusion, Vitalik Buterin’s idea for stealth addresses has the potential to revolutionize Ethereum. Not only will it increase user privacy, but it could also increase Ethereum’s competitiveness against privacy coins.
However, the authorities may not approve this structure, considering that privacy coins are not their favorite cryptocurrencies.
