What Are Stealth Addresses?

Stealth addresses provide privacy for transactions on Ethereum. While it’s impossible to completely hide a blockchain transaction, stealth addresses can, at the very least, conceal the recipient's identity. And in doing so, offer an added layer of protection for anyone who doesn't want the transaction data overtly tied to them.

On a distributed ledger (a public record of transactions), anyone can view details of a transaction such as the date, the amount, and the wallets or the entities involved. They can search the specific transaction ID or hash on a block explorer, such as etherscan for Ethereum or Blockstream for Bitcoin.

That said, attempts to enhance privacy in the Ethereum ecosystem aren't without challenges both from a regulatory and technical standpoint. Case in point: the obstacles with Tornado Cash in 2019 (OFAC sanctions aside). Ethereum co-founder Vitalik Buterin noted that the virtual currency mixer is only able to hide ETH or major ERC-20s tokens. This leaves a gap for other widely-used assets native to the Ethereum protocol such as POAPs, NFTs, and ENS names. Hence the reason for stealth addresses.

Proposed by Buterin in a recent blog post, a "stealth address system" would offer enhanced privacy protections for users, regardless of how small the transaction size or the asset in question.

How do stealth addresses work?

Paraphrasing Buterin, this is how stealth addresses work:

Either the recipient (let’s call them “Bob”) or the sender (“Alice”) can generate a stealth address for the transaction. However, only the recipient, Bob, can control the transaction. Another way to think of a stealth address is as a wallet address that is cryptographically tied to Bob’s public address, but that is only revealed to the parties transacting.