Vitalik Buterin, the co-founder of Ethereum, has shared a possible solution to what he calls the "largest remaining challenge" for Ethereum — privacy.
Buterin acknowledged the need for a privacy solution in a blog post on January 20 because all information that goes onto a "public blockchain" is public by default.
He then came up with the idea of "stealth addresses," which he claims to have the potential to anonymize peer-to-peer transactions, nonfungible token (NFT) transfers, and Ethereum Name Service (ENS) registrations, thereby protecting users.
Buterin explained in his blog post how two parties can conduct anonymous on-chain transactions.
To begin, a user seeking assets will generate and keep a "spending key," which will then be used to generate a stealth meta-address.
This address is then passed on to the sender, who can perform a cryptographic computation on the meta-address to generate a stealth address that belongs to the receiver.
The sender can then transfer assets to the receiver's stealth address while also publishing a temporary key to confirm that the receiver owns the stealth address.
As a result, for each new transaction, a new stealth address is generated.
Buterin stated that a "Diffie-Hellman key exchange" as well as a "key blinding mechanism" would be required to ensure that the link between the stealth address and the user's meta-address is not visible to the public.
The Ethereum co-founder also mentioned that ZK-SNARKs, a cryptographic-proof technology with built-in privacy features, could be used to pay transaction fees.
Buterin cautioned that this could cause problems of its own, at least in the short term, stating that "this costs a lot of gas, an extra hundreds of thousands of gas just for a single transfer."
Stealth addresses have been addressed since 2014 as a solution to on-chain privacy issues. However, very few solutions have reached the market thus far.
He described stealth addresses as a "low-tech approach" for anonymously transferring ownership of ERC-721 tokens, also known as NFTs, in August.
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