Vitalik Buterin Divulges the ‘Largest Remaining Challenge’ in Ethereum

While the concept of stealth addresses looks to be complicated in principle, Buterin previously described it as a “low-tech approach” in comparison to other Ethereum privacy solutions.

Vitalik Buterin, co-founder of Ethereum, has presented a possible solution to what he calls the “biggest unsolved difficulty” on Ethereum: privacy.

Buterin acknowledged the necessity for a privacy solution in a blog post on January 20 because any information that gets onto a “public blockchain” is public by default.

He then came up with the idea of “stealth addresses,” which he claims have the potential to anonymize peer-to-peer transactions, nonfungible token (NFT) transfers, and Ethereum Name Service (ENS) registrations, thereby protecting users.

Buterin described in his blog post how two parties can conduct anonymous on-chain transactions.

To begin, a user seeking assets will generate and store a “spending key,” which will then be used to generate a stealth meta-address.

This address is then sent on to the sender, who can execute a cryptographic computation on the meta-address to construct a stealth address that belongs to the recipient.

The sender can then transfer assets to the receiver’s stealth address while also publishing a temporary key to certify that the receiver owns the stealth address.

As a result, for each new transaction, a new stealth address is produced.

Buterin stated that a “Diffie-Hellman key exchange” as well as a “key blinding technique” 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 protections, may be used to pay transaction fees.

However Buterin stressed that this may lead to problems of its own — at least for the near term — adding “this costs a lot of gas, an extra hundreds of thousands of gas simply for a single transfer.

Stealth addresses have long been touted as a solution to on-chain privacy issues, which have been addressed since 2014. However, relatively few remedies have reached the market thus far.

It’s also not the first time Buterin has brought up the topic of stealth addresses in Ethereum.

He described stealth addresses as a “low-tech approach” for surreptitiously transferring ownership of ERC-721 tokens, also known as NFTs, in August.

The Ethereum co-founder explained that the suggested stealth address approach provides privacy in a different way than the now-OFAC-sanctioned Tornado Cash:

”Tornado Cash can hide transfers of mainstream fungible assets such as ETH or major ERC20s […] but it’s very weak at adding privacy to transfers of obscure ERC20s, and it cannot add privacy to NFT transfers at all.”

Buterin offered some advice to Web3 projects that are developing a solution:

“Basic stealth addresses can be implemented fairly quickly today, and could be a significant boost to practical user privacy on Ethereum.”

They do necessitate some effort on the part of the wallet to support them. Having said that, I believe wallets should begin to migrate toward a more natively multi-address approach […] for other privacy-related concerns as well,” he noted.

Buterin warned that stealth addresses could cause “longer-term usability challenges,” such as social recovery issues. However, he is certain that the issues will be resolved in due course: “In the longer run, these concerns can be fixed, but the stealth address ecosystem of the long term is looking like one that would really heavily rely on zero-knowledge proofs,” he noted.