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Ethereum Co-founder Vitalik Buterin offered a solution to what he calls Ethereum’s “greatest remaining challenge” – privacy. Vitalik Buterin acknowledged the need for a privacy solution in a January 20 blog post, as any information that reaches an “public block chain” is public by default.

Vitalik then imagined the concept of “stealth addresss” to overcome the security problem. According to Buterin, these addresses can anonymize peer-to-peer transactions, non-fungible token (NFT) Ethereum Name Service (ENS) transfers and records, protecting users.

Vitalik Buterin’s Incomplete Guide to Stealth Addresses

Buterin explained in the blog post how two parties can conduct anonymous on-chain transactions. To begin with, a user seeking to receive assets will generate and maintain a “spend key,” which will then be used to generate a stealth meta address.

This address, which can be registered with ENS, is then transmitted to the sender, who can perform a cryptographic calculation on the meta-address to generate a stealth address that belongs to the recipient.

The sender can then transfer assets to the recipient’s stealth address while publishing a temporary key to confirm that the stealth address belongs to the recipient. As a result, each new transaction generates a new stealth address.

Vitalik Buterin steers the crypto community towards a privacy solution for Ethereum 1
Source: blog post by Vitalik Buterin

A stealth address, as proposed by Vitalik Buterin, is one that can be generated by a buyer or seller and is controlled by a single party. Another way to look at it is that stealth addresses offer the same privacy benefits as a buyer producing a new address for each transaction, but without forcing the buyer to interact.

Vitalik Buterin said that a “Diffie-Hellman key exchange” as well as a “key masking technique” would be needed to ensure that the link between the stealth address and the meta address of the user n is not visible to the public.

Vitalik Buterin steers the crypto community towards a privacy solution for Ethereum 2
Source: blog post by Vitalik Buterin

Stealth addresses in cryptography

Peter Todd first introduced the Elliptic Curve Cryptography in the context of Bitcoin in 2014. This technique works as follows (it involves a prior understanding of fundamental Elliptic Curve Cryptography).

You might think stealth addresses aren’t that difficult; the theory is already solid, and getting them adopted is only a matter of time. The problem is that there are some important aspects of the implementation that need to be addressed for a truly effective implementation.

Suppose you receive an NFT. They forward it to a stealth address you control to protect your privacy. Your wallet automatically detects this address after scanning the ephem pubkeys on the chain. You can now freely prove ownership of the NFT or transfer it to someone else.

But there is a problem ! Since the account has no ETH, there is no way to pay transaction fees. Even ERC-4337 token payers will fail as they only work with fungible ERC20 tokens. And you cannot deposit ETH there from your main wallet, because it creates a publicly visible link.

Vitalik Buterin argued that there is only one “simple” approach to solving the problem. Accordingly, he supports the use of ZK-SNARKs to transfer funds to pay fees! However, this comes with its own set of problems. The phase costs a lot of gas, hundreds of thousands of dollars for a single move.

Another brilliant strategy is to rely on specialized transaction aggregators (“researchers” in MEV lingo). These aggregators would allow consumers to pay once for a set of “tickets” that can be used to pay for on-chain transactions.

When a user needs to spend an NFT on a stealth address that contains nothing else, they send one of the tickets to the aggregator, which is encoded using a Chaumian blinding method. This is the original protocol that was used in the centralized and privacy-preserving e-money systems proposed in the 1980s and 1990s.

Stealth addresses have long been touted as a solution to on-chain privacy issues, which have been resolved since 2014. However, relatively few remedies have hit the market so far. This is also not the first time that Buterin has broached the subject of stealth addresses in Ethereum.

He described stealth addresses as a “low-tech approach” to surreptitiously transfer ownership of ERC-721 tokens, also known as NFTs, in August. The Ethereum co-founder explained that the suggested stealth address approach offers different privacy than the now OFAC-sanctioned Tornado Cash:

Tornado Cash can hide transfers of traditional fungible assets such as ETH or major ERC20s […] but it is very weak at adding privacy to dark ERC20 transfers, and it cannot add privacy to NFT transfers at all.

Vitalik

Buterin warned that stealth addresses could cause “longer-term usability issues”, such as social recovery issues. However, it is sure that the problems can be solved in a timely manner:

In the longer term, these issues can be resolved, but the long-term stealth address ecosystem looks like an ecosystem that would really rely heavily on zero-knowledge proofs.

Vitalik



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