Ethereum co-founder Vitalik Buterin has shared a possible solution to what he describes as the “biggest remaining challenge” for Ethereum: privacy.
in a blog to post On Jan. 20, Buterin acknowledged the need to find a privacy solution because, by default, all information that goes into a “public blockchain” is also public.
He then came to the concept of “stealth addresses,” which he said can potentially anonymize peer-to-peer transactions, non-fungible token transfers (NFTs), and Ethereum Name Service (ENS) records, protecting users.
An Incomplete Guide to Hidden Directions:https://t.co/21Q18BrD30
— vitalik.eth (@VitalikButerin) January 20, 2023
In the blog post, Buterin explained how on-chain transactions can be made between two parties with anonymity.
First, a user seeking to receive assets will generate and hold a “spend key” which is then used to generate a hidden meta address.
This address, which can be registered in ENS, is then passed to the sender, who can perform a cryptographic calculation on the meta address to generate a hidden address, which belongs to the receiver.
The sender can then transfer assets to the recipient’s hidden address, as well as post a temporary key to confirm that the hidden address belongs to the receiver.
The effect of this is that a new stealth address is generated for each new transaction.
Buterin noted that a “Diffie-Hellman key exchange” would need to be implemented in addition to a “key stealth mechanism” to ensure that the link between the stealth address and the user’s meta address is publicly visible.
The Ethereum co-founder added that ZK-SNARK, a crypto-proof technology with built-in privacy features, could transfer funds to pay transaction fees.
However, Buterin stressed that this can lead to its own problems, at least in the short term, stating that “this costs a lot of gas, hundreds of thousands of extra gas just for a single transfer.”
Related: Cryptocurrency privacy is in greater danger than ever: here’s why
Stealth addresses have long been touted as a solution to address privacy issues on-chain, which has been worked on since 2014. However, very few solutions have been released to the market so far.
It’s also not the first time Buterin has discussed the concept of hidden addresses on Ethereum.
In August, he called stealth addresses a “low-tech approach” to anonymously transfer ownership of ERC-721 tokens, also known as NFTs.
The Ethereum co-founder explained that the proposed stealth address concept offers privacy in a different way than the now authorized US Office of Foreign Assets Control (OFAC) Tornado Cash:
“Tornado Cash can hide transfers of major fungible assets like ETH or major ERC20 (…) but is very weak at adding privacy to obscure ERC20 transfers, and cannot add privacy to NFT transfers at all.”
Buterin offered some advice to Web3 projects developing a solution:
“Basic stealth addresses can be implemented quite quickly today and could be a significant boost to practical user privacy on Ethereum.”
“They require some work on the wallet side to support them. That being said, it is my opinion that wallets should start moving towards a more native multi-address model (…) for other privacy-related reasons as well,” she added.
Buterin suggested that stealthy addresses may present “long-term usability concerns”, such as social recovery issues. However, he is confident that the problems can be properly addressed in time:
“In the long term, these problems can be solved, but the long-term ecosystem of stealth addresses looks like one that would really rely heavily on zero-knowledge proofs,” he explained.
