Ethereum founder Vitalik Buterin proposed stealth addresses to enhance the privacy and security of transactions carried on the blockchain. No wonder, blockchain scams have pegged the space with several hiccups, keeping investors away. Evidently, what calls to tackle the situation is a robust privacy security technology, something Buterin aims to bring forth with stealth addresses.
He claims:
Enhancing the current situation is a vital and widely acknowledged issue. To date, discussions about enhancing privacy have mainly focused on a particular application: maintaining the privacy of ETH and popular ERC20 token transfers (primarily self-transfers)
All transactions on the blockchain are public; therefore, everybody on the network can view the transactions and keys of the sender and receiver. Though such a feature might not raise a red flag instantly, it can aggravate the scope of scams. Hence, stealth addresses ensure greater privacy to mask one's transactions through single-time unique addresses. Let's see what all stealth addresses aim to achieve.
A stealth address is a type of cryptographic address that is created by either Alice or Bob, but can only be accessed or controlled by Bob.
While hiding transactions is impossible on the blockchain, it might be more feasible to hide the recipient's identity and mask the wallet identities. This is precisely what a stealth address aims to achieve. A stealth address is a single-use address that disguises one's public key. It is a unique address that individuals create every time they make a new transaction without changing the nature or system of transactions.
In short, stealth addresses help individuals protect their wallet IDs, preventing malicious scammers from tracing back to them. Moreover, it also helps in developing secured transactions. While the blockchain system records the transactions, it uses the stealth address as a proxy.
Either the sender or the recipient can generate a stealth address. However, only the latter can control it. In fact, the recipient uses the stealth address to create a secret key, which in turn helps them develop a stealth meta address. Once the recipient sends the stealth meta address to the sender, the latter can develop a unique address for the transaction along with the ephemeral key. This lets the recipient discover their unique stealth address. To sum up, such a mechanism is similar to the recipient having a unique address every time the sender makes a transaction.
While the mechanism of stealth addresses looks convincing and can help one carry out secured transactions, it is not free of hurdles. Just like all good things come with drawbacks, the same goes for stealth addresses. While these addresses aim at disguising payments and maintaining the privacy of the sender and the recipient, they could pave the way for illicit activities. For instance, people can mask their transactions and carry out crimes like money laundering, etc.
Stealth addresses can also serve as a way to avoid taxes on one's income. Since the total earnings and wallet details are hidden, it is also beyond surveillance. Moreover, it can also make managing one's finances challenging. Since the transactions are carried out with different unique addresses every time, tracing back one's earnings or activities can be cumbersome.
Finally, though the addresses of the sender and the receiver are disguised, one can still see the object around which the transaction took place. Evidently, once these details are combined with a few others, tracing the wallets becomes easier for scammers. Hence, though stealth wallets commit to offering several benefits, their drawbacks can prove to be detrimental.
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