Ethereum creator Vitalik Buterin has laid out a general approach to stealth addresses, as seen on his personal blog at January 20.
Stealthy addresses, as described by Buterin, circumvent the fact that public blockchains like Ethereum reveal a significant amount of transaction data.
Blackout addresses essentially hide the recipient of certain transactions. Stealth addresses also replicate the benefits of a standard privacy practice adhered to by some crypto users: creating a new address for each transaction received from a new sender.
Buterin noted that, despite its privacy benefits, blackout addresses don’t provide any way to pay transaction fees. To resolve this, he suggested two approaches. The first approach involves ZK-SNARKS and would be expensive; the second approach involves specialized transaction aggregators and seems to be his preferred solution.
Buterin further noted that stealth addresses make it difficult to create social recovery wallets, that is, wallets that can be recovered by third parties if the primary holder loses their private key. Although Buterin proposed certain solutions, he said that developers could “face the bullet” and recognize that recovering a wallet is costly and costly.
Buterin also made out Tornado Cash’s hidden addresses. He said that while Tornado Cash can hide transactions involving ETH and major ERC-20 tokens, it is not useful for hiding transactions involving NFTs and minor ERC-20 tokens. He added that Tornado Cash is more practical for self-directed coin mixing.
Buterin has discussed hidden addresses in the past. In March 2020, suggested a stealth address scheme compatible with the Ethereum Naming Service (ENS). In August 2022, he suggested a stealth address scheme compatible with ERC-721 NFT.
Buterin did not say when or if Ethereum will add hidden addresses. However, he said that stealth addresses “can be implemented quite quickly today” and would provide significant privacy benefits to users. He added that wallets should introduce native privacy features, such as automatic address generation, in the absence of hidden addresses.
At least one existing Ethereum improvement proposal, EIP-5564, presents a standardized way to create hidden addresses on Ethereum. However, the status of that proposal suggests that it is likely to change in the future.
Several blockchains, including Zcash and Monero, already use hidden addresses. Lesser known projects like Verge also include the feature.