Ethereum (ETH) creator Vitalik Buterin says that the leading smart contract platform faces a serious obstacle, but that a relatively simple solution could help immensely.
In a post on his blog, Buterin says that privacy is one of the largest remaining challenges that Ethereum faces today.
“By default, anything that goes onto a public blockchain is public. Increasingly, this means not just money and financial transactions, but also ENS (Ethereum Name Service) names, POAPs (Proof of Attendance Protocols), NFTs, soulbound tokens, and much more. In practice, using the entire suite of Ethereum applications involves making a significant portion of your life public for anyone to see and analyze.
Improving this state of affairs is an important problem, and this is widely recognized. So far, however, discussions on improving privacy have largely centered around one specific use case: privacy-preserving transfers (and usually self-transfers) of ETH and mainstream ERC20 tokens.”
Buterin says that as of now, the best way to tackle privacy on Ethereum is through stealth addresses. A stealth address is a one-time address that obfuscates one’s public key, ensuring that no one can trace payments back to the sender.
The Ethereum creator says that crypto wallets could help users take advantage of stealth addresses by creating built-in options for implementing them natively
“Basic stealth addresses can be implemented fairly quickly today, and could be a significant boost to practical user privacy on Ethereum. They do require some work on the wallet side to support them. That said, it is my view that wallets should start moving toward a more natively multi-address model (eg. creating a new address for each application you interact with could be one option) for other privacy-related reasons as well.
However, stealth addresses do introduce some longer-term usability concerns, such as difficulty of social recovery. It is probably okay to simply accept these concerns for now, eg. by accepting that social recovery will involve either a loss of privacy or a two-week delay to slowly release the recovery transactions to the various assets (which could be handled by a third-party service).
In the longer term, these problems can be solved, but the stealth address ecosystem of the long term is looking like one that would really heavily depend on zero-knowledge proofs.”
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Source: https://dailyhodl.com/2023/01/22/vitalik-buterin-names-one-of-ethereums-biggest-challenges-says-improvement-can-be-implemented-fairly-quickly/