Implementing Stealth Address, an anonymous transaction protocol in which even Vitalik has invested: Nocturne Labs

Nocturne Labs, a startup founded in the United States last year, has attracted attention for its focus on developing an anonymous transaction protocol. The company aims to enable users to conduct anonymous transactions within the Ethereum ecosystem and is expected to launch on the Ethereum mainnet next month. Recently, the company completed a $6 million seed round of financing, led by Bain Capital Crypto and Polychain Capital, with Ethereum co-founder Vitalik Buterin, Bankless Ventures, Hack VC, and Robot Ventures participating.

Vitalik Buterin recently stated in an AMA (Ask Me Anything) that the main risks of stagnation in cryptocurrencies come from the lack of privacy and an open network infrastructure. In a blog post from January this year, he also mentioned that the biggest remaining challenge in the Ethereum ecosystem is privacy. He detailed what Stealth Address is in thepost.

Stealth Address is a system that generates many unlinkable "one-time addresses." This system can protect the privacy of both parties in a transaction, avoiding the public exposure of the recipient's identity. For example, if Alice wants to pay Bob 1000 DAI without revealing that Bob is the recipient, Stealth Address allows Alice to generate an address controlled only by Bob and publish additional encrypted data on the chain to help Bob confirm that the address belongs to him. This technology has been applied in the EIP-5564 standard and can generate a stealth external owned account (EOA) in a "non-interactive manner."

Nocturne Labs combines "account abstraction" and "zero-knowledge proofs" technologies to establish a private account layer. Through this layer, users can send and receive funds without exposing their addresses. The company also offers services for user asset custody, privacy payments, and integrates into MetaMask Snap with built-in asset privacy wallet experience. The current fundraising phase aims to launch the V1 protocol, support integration with protocols, wallets, payment platforms, and other partners, and begin product development and distribution.

The generation process of Stealth Address requires the participation of two parties: the recipient and the sender.

1. The recipient generates a spending key and a stealth meta-address.
2. The sender generates a temporary private key and the corresponding temporary public key.
3. Both parties share their public keys to generate the final stealth address.
4. The recipient can create and access the stealth address using their spending key and the sender's temporary public key.

While Stealth Address cannot hide the occurrence of a transaction, it can hide the identity of the receiver, thus protecting the privacy of both parties in the transaction.

Vitalik Buterin previously pointed out a potential conflict between the use of social recovery wallets and Stealth Address. Social Recovery Wallet is a mechanism that supports the sharing of keys among institutions and partners, allowing wallet permissions to be recovered when a certain proportion of keys are present. However, with the Stealth Address mechanism, hiding the existence of a wallet could affect the operational logic of social recovery, increasing costs and reducing privacy.

Nevertheless, there is an opportunity to solve this issue through more advanced zero-knowledge proof methods. Overall, if Stealth Address can be rapidly implemented today, it could significantly enhance user privacy protection on Ethereum. While some work is needed on the wallet side to support Stealth Address, this transition is worthwhile.