Ethereum co-founder Vitalik Buterin shared a possible solution to "Ethereum's main remaining problem" - privacy.
In a blog post, he wrote that we need to come up with a privacy solution because, by default, all information that goes on a public blockchain is also public. To solve the problem, Vitalik proposed the concept of “invisible addresses,” which he said could anonymize peer-to-peer transactions, NFT transfers, and Ethereum Name Service (ENS) registrations, protecting users.
How does Buterin propose to carry out anonymous transactions?
The asset recipient creates and stores a "spend key" that will be used to create a hidden meta address.
The meta address, which can be registered in ENS, is transmitted to the sender. It can perform a cryptographic calculation using the meta address to create a hidden address that belongs to the recipient of the coins.
The sender then transfers the assets to the hidden address and publishes a temporary key to verify that the hidden address belongs to the recipient.
Thus, for each new transaction a new hidden address is created.
To ensure that the relationship between the hidden address and the meta address is not publicly known, a “Diffie-Hellman key exchange” must be implemented along with a “key chaining mechanism.”
To pay transaction fees, you can use ZK-SNARKs, a crypto technology with privacy features. However, this whole system can lead to high gas costs.
People have been thinking about hidden addresses since 2014, but there are still few effective solutions on the market. Buterin himself in August called hidden addresses a “low-tech approach” for anonymously transferring ownership of ERC-721 tokens (NFTs).
The current proposed version of privacy is different from what Tornado Cash uses.
“Tornado Cash can hide transfers of major fungible assets such as ETH and ERC-20 tokens. But this tool is ineffective at ensuring the privacy of little-known ERC-20 and cannot provide privacy at all for NFT transfers,” Buterin noted.
Buterin gave some advice to projects that want to work on sensitive addresses.
“Today, basic hidden addresses can be implemented quite quickly. They require some work on the wallet side, but I believe wallets should start moving towards a more natural multi-address model,” Buterin added.