Understanding and Using Stealth Addresses

Stealth addresses are a method by which additional security can be granted to the recipient of a digital currency by requiring the sender to create a random one-time address for a given transaction.

Benefits of Stealth Addresses

When multiple transactions sending funds to a stealth address are conducted, instead of these transactions appearing on the blockchain as multiple payments to the same address, what will be recorded will in fact be multiple outgoing payments to different addresses. This makes it impossible to link transactions to the recipient's published address or one-time generated addresses. The owner of the stealth address can then use their private view key in order to see all their incoming transactions.

For example, if a website wanted to receive donations in a digital currency but didn't want these donations to be publicly viewable on the blockchain, they could publish a stealth address instead of a public address. By doing this, each new donation would require a one-time address to be generated, making it impossible for the future transaction activity of the website to be tracked.

Disadvantages of Stealth Addresses

Despite the additional anonymity offered by stealth addresses, they do posses some disadvantages, including the following…

Malicious use of stealth addresses

Stealth addresses are a double-edged sword. On one hand, they are a powerful additional method of security for genuine users. On the other hand, they are powerful additional method of security for malicious users.

If the public address of a user who engaged in malicious activity was known, it then becomes a straightforward task of tracking their transactions on the blockchain. However, if this user were to instead use stealth addresses, it becomes much more difficult to track. In essence, the life of the user who is engaged in malicious activity is made easier by the use of stealth addresses.

Balance discovery

This issue refers to how a blockchain-based protocol which has implemented stealth addresses discerns when a transaction has been made, and to which user it belongs to.

Using the example illustrated previously, if the same website received thousands of single donations each with their own randomly one-time generated addresses, it can be technologically challenging to “discover” these transactions and attribute them to a particular user.

Conclusion

Stealth addresses are an incredibly powerful tool because of the additional layer of anonymity that they provide. They protect users from having their account balance publicly viewable on a blockchain by generating one-time addresses; through use of a private view key, owners of a stealth address can then view all incoming transactions.

However, this additional level of anonymity serves to benefit malicious users as well as well-intentioned ones. Furthermore, there exists technological challenges in its implementation, such as the problem of balance discovery.