Ethereum may address big privacy challenges

3 min readJan 23, 2023

Ethereum is a popular asset and blockchain, but many people think privacy is a concern. The co-founder Vitalik Buterin has some new ideas about privacy and Ethereum.

Ethereum (ETH) co-founder Vitalik Buterin has proposed a new solution to one of the most pressing issues the Ethereum blockchain faces — privacy.

Recently, on Jan. 20th, Buterin detailed the concept of “stealth addresses,” which could offer a way to anonymize peer-to-peer transactions, non-fungible token (NFT) transfers, and Ethereum Name Service (ENS) registrations, by protecting user data.

Buterin noted that, by default, all information put onto a public blockchain is public; however, using stealth addresses could provide users with greater privacy. Let’s learn how.

How do stealth addresses enhance privacy?

Stealth Addresses are a great way to keep your financial transactions on the blockchain anonymous from any prying eyes. A stealth address allows two parties to exchange funds without revealing their identity on the blockchain.

In a nutshell, it lets people transact privately on the blockchain. It’s like sending money without disclosing who you’re sending it to!

When a sender initiates a transaction, the stealth address takes their payment and redirects the funds to an address only the recipient knows. This prevents anyone else from seeing the transaction or the money moving.

Think of the stealth address as a digital envelope where the recipient is the only one who can open it and see the funds, always. To give you a better understanding of how it works, here’s an example.

Let’s say John wants to send Robert a payment. John sends the funds to Robert’s stealth address rather than directly to a regular address he controls. Robert’s wallet then automatically generates a different stealth address for each payment he receives to ensure the full privacy of his transactions.

So, John’s transaction is private instead of repeatedly broadcasting the same address and making it public like a normal one.

Finally, Robert ends up with the money since his wallet is the only one with access to the new address. But no one else can see where the money came from or where it went because of the stealth technology.

This is how, through stealth addresses, on-chain transactions between two parties can be conducted with total anonymity and privacy.

Privacy coins’ troubled relationship with regulators

Privacy coins, such as Monero (XMR), are a type of cryptocurrency specifically designed to protect the financial privacy of their users (similar to stealth addresses).

Their popularity has grown in recent years, especially as the use of public blockchains and cryptocurrency addresses has become easier to track. This has raised many concerns among regulators, who worry that these coins are being used for money laundering, tax evasion, and other criminal activities.

Many regulators have already taken steps to limit or ban the use of privacy coins, citing concerns that they make it difficult to trace transactions and enforce regulations.

In the U.S., for example, the Secretary of the Treasury has urged banks and money service businesses to avoid handling digital assets that do not comply with anti-money laundering laws or that lack customer identification protocols.

Despite regulatory concerns, privacy coins remain popular among users who value their financial privacy. New technologies are being developed to improve user information privacy and make it easier for regulators to identify and track suspicious transactions.

However, regulators will likely be able to control the use of privacy coins once laws are in place to define their use and the associated regulatory penalties clearly.

The road ahead for Ethereum

In conclusion, Vitalik Buterin’s idea for stealth addresses has the potential to revolutionize Ethereum. Not only will it boost the privacy of users, but it might also increase Ethereum’s competitiveness against privacy coins.

However, authorities may not approve of this structure, considering that privacy coins are not their favorite cryptocurrencies.

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