Ethereum co-founder, Vitalik Buterin, has shared a possible solution to what he describes as the “biggest remaining challenge” for Ethereum: privacy.
In an article posted on his blog on January 20, Buterin recognized the need to find a solution for privacy because, by default, all information that goes into a “public blockchain” is also public.
He then came up with the concept of “hidden addresses,” which he says can anonymize peer-to-peer transactions, non-fungible token transfers (NFTs), and Ethereum Name Service (ENS) records, protecting users.
An incomplete guide to stealth addresses: https://t.co/21Q18BrD30
— vitalik.eth (@VitalikButerin) January 20, 2023
An Incomplete Guide to Hidden Addresses:
In the blog post, Buterin explained how on-chain transactions can be carried out between two parties with anonymity.
First, a user wishing to receive assets will generate and keep a “spend key” which will be used to generate a hidden or invisible meta-address.
This address, which can be registered in the ENS, is transmitted to the sender, which can perform a cryptographic calculation on the meta-address to generate a hidden address belonging to the receiver.
The sender can then transfer assets to the recipient’s hidden address, in addition to publishing a temporary key to confirm that the address belongs to the recipient.
The effect of this is that a new hidden 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 blinding mechanism” to ensure that the link between the hidden address and the user’s meta-address cannot be seen publicly.
The Ethereum co-founder added that ZK-SNARKs – a crypto-proof technology with built-in privacy features – could transfer funds to pay transaction fees.
However, Buterin stressed that this can bring its own problems – at least in the short term – by stating that “this costs a lot of gas, Hundreds of thousands of extra gas just for one transfer.”
Address blinding has 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 commercialized so far.
It is also not the first time that Buterin has discussed the concept of hidden addresses in Ethereum.
In August, he called cloaking 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 hidden address concept offers different privacy than Tornado Cashwhich was sanctioned by the United States Office of Foreign Assets Control (OFAC):
”Tornado Cash can hide major fungible asset transfers like ETH or ERC20 important […] but it is very weak at adding privacy to dark 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 do require some work from wallets to make them compatible. That said, I think wallets should start moving towards a more native multi-address model. […] also for other reasons related to privacy,” he added.
Buterin suggested that hidden addresses may introduce “long-term usability problems”, such as social retrieval issues. However, he is confident that the issues can be properly resolved over time:
“In the long term, these problems can be solved, but the long-term hidden address ecosystem seems to rely heavily on zero-knowledge proofs,” he explained.
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