What are stealth addresses, and how do they work? | OWNR Wallet (2024)

Crypto stealth addresses play a crucial role in enhancing the privacy of cryptocurrency transactions by concealing the recipient's identity and transaction history. Unlike conventional public addresses, stealth addresses generate unique, one-time addresses for each transaction, ensuring the recipient's actual address remains undisclosed during fund transfers.

In the realm of blockchain technology, stealth addresses serve as a privacy-enhancing feature, allowing users to receive money anonymously. The transaction process involves the sender utilizing a stealth address to broadcast the transaction to the network. The recipient, without directly generating a private key from the stealth address, employs the wallet to recognize and process incoming transactions. This innovative approach enables users to access and control received funds without compromising their primary address, significantly increasing the privacy of cryptocurrency transactions.

A notable example of a cryptocurrency utilizing stealth addresses is Monero (XMR). Monero employs features like ring signatures and stealth addresses to provide users with enhanced privacy and anonymity, making it challenging for external observers to link the sender, recipient, and transaction amounts.

Stealth Addresses vs. Regular Wallet Addresses

Stealth addresses bring a new level of transaction privacy by offering unique, one-time addresses, distinguishing them from regular wallet addresses, which often lack such privacy measures and remain static.

The appearance of stealth addresses is similar to standard cryptocurrency addresses, typically comprising alphanumeric characters. The key distinction lies in their one-time usage and the cryptographic methods employed to obfuscate the connection between the recipient's real address and the stealth address. Regular wallet addresses, when repeatedly used, can lead to the mapping of users' financial activities, violating privacy and enabling third-party monitoring of transaction histories.

Additionally, stealth addresses address concerns related to address reuse, minimizing the risk of various attacks, such as attempts at deanonymization and exposure to malicious organizations.

How Stealth Addresses Work

Stealth addresses operate by creating unique addresses for each transaction, allowing only the intended recipient to access and identify the funds. To illustrate the process, consider a hypothetical scenario involving two individuals, Bob and Alice, using a cryptocurrency with stealth addresses.

Step 1: Bob Generates and Shares His Stealth Address

Bob creates two addresses, A and B, sharing only A publicly while keeping B private. Together, A and B form Bob's stealth address for a specific transaction, ensuring uniqueness.

Step 2: Alice Computes Bob's Stealth Address and Sends Funds

Alice uses Bob's public stealth address (A) and a random number (r) to generate a one-time address (P) for the transaction. The funds are sent to this address, enhancing transaction privacy.

Step 3: Alice Publishes Ephemeral Pubkey

Alice posts an ephemeral public key (E) on the blockchain, which Bob uses to locate and claim the assets. Ephemeral pubkeys are temporary and not directly tied to long-term public addresses.

Step 4: Bob Retrieves Funds

Bob monitors the network for transactions involving his stealth address. Using his secret addresses (A and B) and ephemeral public key (E), he figures out the original secret number (r), ensuring the privacy of the transaction.

Throughout this process, the Diffie-Hellman key exchange protocol is employed, creating a shared secret between Bob and Alice over an insecure channel. This shared secret, combined with Bob's private key, ensures the creation of an unlinkable destination address for enhanced privacy.

Advantages and Disadvantages of Stealth Addresses

Stealth addresses offer heightened transaction privacy by using distinct, one-time addresses, reducing the risk of transaction linkability. However, their implementation complexity and potential impact on processing times may pose challenges. Despite these drawbacks, the advantages include enhanced security, privacy, and protection against address reuse, contributing to the overall fungibility of cryptocurrencies. As with any innovative technology, user education and widespread adoption are crucial to maximizing benefits and addressing potential concerns.