Ethereum co-founder Vitalik Buterin believes privacy is the largest remaining challenge for the Ethereum network. He acknowledged the need to come up with a privacy solution. Buterin stated in a blog post that by default all information that goes onto a public blockchain is public too.
He said stealth addresses can potentially anonymize peer-to-peer transactions, NFT transfers, and Ethereum Name Service (ENS) registrations, protecting users. Buterin outlined how on-chain transactions can be carried out between two parties with anonymity. He said that firstly a user looking to receive assets will generate and keep a spending key that is then used to generate a stealth meta-address. The Ethereum founder pointed out the address is then passed onto the sender who can perform a cryptographic computation on the meta-address to generate a stealth address that belongs to the receiver.
Buterin said the sender can transfer the assets to the receiver’s stealth address and publish a temporary key to confirm that the stealth address belongs to the receiver. Thus, a new stealth address is generated for each new transaction. The expert said a Diffie-Hellman key exchange in addition to a key blinding mechanism would need to be implemented. This would ensure that the link between the stealth address and the user’s meta address can be seen publicly. Buterin added that ZK-SNARKS, a cryptographic-proof technology with built-in privacy features, could transfer funds to pay transaction fees.
He said this could lead to problems of its own as it costs a lot of gas, an extra hundreds of thousands of gas just for a single transfer. Furthermore, stealth addresses have long been touted as a solution to address on-chain privacy issues.