Vitalik Buterin, one of the co-founders of Ethereum, has posted a tweet today suggesting the addition of a new privacy feature to the Ethereum network. The update would bring stealth addresses for ERC721, the standard model for the NFT (non-fungible token) ecosystem. Through this upgrade, which Vitalik described as “low-tech”, users will be able to send and receive NFTs anonymously.
A privacy solution for ERC721 tokens had already been researched and published by a developer known as Nerolation. However, Vitalik proposes to improve upon this solution through lighter technology.
Vitalik argued that there wouldn’t be the need to use Merkle trees, or Zero Knowledge technology, since the uniqueness of NFTs would hinder the possibility of creating an “anonymity set”. He further stated that using simple stealth addresses is a better alternative but figuring out how to pay gas fees remains challenging.
The Downside of Anonymity
The tweet provoked a heated debate about privacy in the comments section. While some were adamant about the idea, even requesting the same layer of privacy for all ERC20 tokens, others weren’t so keen.
Many argued that this new level of privacy would defeat the purpose of transparency, undermining the whole purpose of blockchain technology. However, it’s important to note that privacy and transparency can co-exist.
While stealth addresses will hide the identity of whoever is involved in a transaction, records that an NFT has been moved will still appear in the public ledger. Nevertheless, even pro-privacy advocates are forced to admit that this new update will make tax evasion and other crimes easier.
Stealth addresses will make tracking theft even harder, making it virtually impossible to see which wallet the stolen NFTs ended up in. Additionally, money laundering and wash trading, a common practice used to inflate the value of NFTs artificially, will be made easier with the new stealth addresses.
Not everyone will support the advancement of blockchain privacy. Governments and central authorities will likely aim to combat the new privacy features with the pretext that it will facilitate crime and make it increasingly harder to protect users. Increased privacy may also lead to setbacks in terms of the regulation of the crypto industry.
Ethereum Taking a More Privacy-Centric Approach?
Vitalik shared his pro-privacy stance publicly in a tweet from 2018. He admitted that, over the years, he changed his opinion on the subject. Through literature and deep reflection, he now realizes that, even in an ideal society, people should retain a certain level of online privacy.
Protecting privacy will only become increasingly more challenging as new technologies emerge. The inevitable release of the first Central Bank Digital Currencies (CBDCs) may also prove why maintaining financial privacy is essential to keeping individual freedoms alive.
It’s quite possible that Ethereum, and the blockchain space as a whole, will become more privacy-centric as time goes on. If that happens, it’s vital that transparency is not sacrificed and that protective mechanisms prevent bad actors from abusing privacy features.