How Stealth Addresses Are Changing the Game

Ethereum’s transparency is a double-edged sword. Despite being one of the strengths of decentralization, it also means that anyone can access your transaction records, which isn’t always ideal. 

Already, protocols like TornadoCash allow users to transact privately to an extent. Ethereum is also hastening innovation to offer heightened privacy. The network has seen two proposals that seek to introduce stealth addresses (a means to transact privately). 

So, what are stealth addresses, and how does Ethereum approach their implementation? Let’s dive in! 

What are stealth addresses? 

A stealth address is a unique, one-time address used to conceal the recipient’s true identity. It is linked to the recipient’s public key, where the funds from the transaction are routed to instead of the public address. As a result, third parties usually cannot form a link between the stealth address and the receiver’s original wallet. 

Ethereum’s approach to stealth addresses: ERC-5564 and ERC-6568 

Privacy at the protocol level, encompassing various systems, including stealth addresses, is not a novel idea in crypto. Blockchains like Monero and ZCash have been offering such a level of privacy for about a decade. However, there have been recent proposals by Ethereum to support private transactions through stealth addresses with ERC-5564, proposed on August 12, 2022, and ERC-6358, on January 24, 2023. 

ERC-5564 (stealth addresses) 

The ERC-5564 is a stealth address protocol that improves on existing stealth address systems, adding more flexibility and efficiency. It supports several cool protocols and systems that allow users to do more with stealth addresses, including storing stealth meta-addresses directly on the contract. This means a user’s stealth meta address, a public reference used to generate stealth addresses, can be registered on the blockchain. As a result, senders can quickly look up the stealth meta-address of a recipient and create the correct stealth address without direct interaction. 

An impressive innovation of ERC-5564 is the view tag, which makes scanning for incoming transactions easier. A view tag is included in the transaction announcement, allowing users to quickly determine which transactions are theirs. This reduces the need for wallets to scan the whole blockchain, further optimizing how stealth meta-addresses are used to facilitate private transactions.

ERC-6358 (stealth meta-address registry) 

ERC-6358 is not a protocol but a registry that complements the ERC-5564 by storing stealth meta-addresses. It introduces this feature where third parties can register stealth meta addresses for users without needing on-chain interaction—all users have to do is sign an off-chain message.  It makes the process easier and less costly for users, as interacting directly with the blockchain can be complex with high gas fees. 

Benefits of stealth addresses for privacy on Ethereum

Better privacy for transactions

Platforms like Nocturne already employ stealth addresses to mask the addresses of the sender and receiver, keeping them hidden despite transacting on public ledgers. Systems like Railgun take it a step further by integrating zk-SNARKS (cryptographic proof that allows you to prove you have certain information without revealing the actual information) with stealth addresses. This feature allows users to keep their addresses as well as their transaction amounts confidential. 

Easier transfers

Tools such as Umbra Cash are making it easier and more accessible to send ETH and tokens privately. By providing off-chain key management, Umbra Cash allows for reduced delays, quicker transfers, and lower costs. 

Essentially, these platforms make private transactions more accessible and reliable by helping users recover addresses if a service goes down, reducing fees when handling multiple transactions, and ensuring smooth use with decentralized applications (dApps). This makes blockchain privacy more practical and user-friendly for everyday transactions.

Downsides of stealth addresses 

Stealth addresses are not without their drawbacks. Some of them are

Risk of centralization 

If you remember, one of the brilliant introductions of ERC-5564 to stealth addresses is the “view tag,” which are unique identifiers that allow people to know transactions belonging to them. 

Users might need to rely on centralized entities to simplify the view tag’s monitoring process. This goes against the decentralization principle of blockchain technology, but it doesn’t end there. Relying on a single entity, for example, a major wallet provider like MetaMask, could give them monopolistic control and let them track and monitor every transaction between users under their purview. 

Transaction fee issues 

Stealth addresses can’t hold ETH to pay transaction fees. If recipients add ETH themselves, it could reveal their identity. ERC-5564, however, suggests a solution to this: the sender includes a small amount of ETH when making the transaction. The recipient can use that ETH to cover gas fees without exposing their identity.

Conclusion 

Stealth addresses represent a significant step forward in the push for greater privacy on Ethereum. By concealing transaction details and allowing users to send and receive funds without revealing their identities, ERC-5564 and ERC-6538 enhance blockchain security and usability. However, challenges like potential centralization risks and transaction fee limitations must be addressed for widespread adoption.

For a more detailed breakdown of how stealth addresses are revolutionizing Ethereum privacy, refer to the original version of this article, which was first published here.