Crypto Stealth Addresses And How They Work

Blockchain transactions are transparent and pseudonymous. This is because transaction records are publicly available but only show the alphanumeric wallet addresses of the sender and receiver. Therefore, while everyone can view these transaction details, real-world identities remain somewhat shielded.

We say somewhat shielded because bad actors with the right know-how and tools can trace these public keys back to you. This is because we all provide extensive KYC details while signing up for a crypto wallet. Fortunately, there are a couple of walkarounds to such privacy issues, one of which is a stealth address.

Tag along as we tell you all about stealth addresses and how they work.

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Understanding stealth addresses

A blockchain is a public, distributed ledger of transactions. This means that anyone can view it, and several individuals hold a live copy of the ledger. It records transaction amounts and the public keys of the sender and receiver.

While this is not bad, it means that observers with malicious intent can also see this information. This is where stealth addresses come in. First proposed by Bitcoin developer Peter Todd in 2014, these wallet addresses can be used to obscure transaction details, thereby providing you with a greater deal of privacy on the blockchain.

How do stealth addresses work?

A stealth address is a one-time address that masks your public key. This ensures that no one can trace payments back to you. It works like this: the sender creates a stealth address on behalf of the recipient. Once it is set up, you can go ahead with your transaction. The blockchain would record the details of the transaction as it usually would. The only difference is that it would input the stealth address as a proxy. This ensures that your actual public address remains hidden.

This is a helpful service for anyone who wishes to keep their transactions hidden from the public eye. For instance, individuals who want to keep their donations private can use stealth addresses to hide the details of their charity.

Stealth addresses – concerns

The obvious concern is bad actors can also use stealth addresses. It would allow them to transact anonymously and keep their illicit activities hidden. Stealth addresses have also been used to avoid taxes. They can make it difficult for the government to see where the funds are moving and block malicious accounts.

Plus, there are some drawbacks for people receiving crypto from stealth addresses. This is because a new stealth address needs to be created for every transaction. This would make it difficult to reconcile and manage one’s financial activity as every transaction would always be linked to a different address.

And while stealth addresses hide the details of the senders, receivers, and the amount transacted, one can still see the product or service the payment was made for and their quantity. Combine this data with a couple of other details, and it becomes easier for those with malicious intentions to determine who the transacting parties are.

(Edited by : Anand Singha)

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