Cryptocurrency is completely anonymous, isn’t it? While many believe this to be true, there are ways in which you can be identified through your crypto transactions. This is where Stealth Address can come in handy. So, why isn’t crypto completely anonymous, and how can stealth addresses help you maintain your privacy?
Why is crypto not anonymous?
A major attraction of cryptocurrency is its increased anonymity and privacy over traditional currencies. For example, when you send or receive money from an individual or business through your bank account using legal tender, your name will be displayed, making you instantly identifiable. While this certainly has an upside to catching illegal activity, many people are not comfortable with the lack of privacy mainstream money offers.
On the other hand, a typical crypto blockchain will record all transactions and display them publicly on a distributed ledger. Its public element may sound worrying, but your name, contact details and other sensitive information is never shown here. Rather, the wallet addresses of the sender and receiver are displayed within the transaction.
This helps crypto remain somewhat traceable and can play a role in identifying cyber criminals when they steal from other wallets or launder funds in crypto. For regular use, this layer of relative anonymity allows them to protect their personal data from prying eyes and keep their crypto activities private. However, it’s important to remember here that the display of wallet addresses is what makes most cryptocurrencies, such as bitcoin, pseudonymous – not anonymous.
What you may not know is that it is possible to uncover a person’s identity through their crypto address. It’s not a simple process, but it can be done given time. Because of this, cryptocurrency is not completely anonymous. This is offensive to many people, especially those who value their privacy. However, there is a way that you can maintain total anonymity while using crypto, and that is through secret addresses.
So, what are secret addresses, how do they work, and should you be using them?
What are crypto stealth addresses?
As discussed earlier, crypto blockchains display the addresses of the sender and the recipient within each transaction. A typical crypto wallet address consists of a random combination of letters and numbers but is unique to only one person. This makes it possible to track back a person’s address.
Stealth addresses are still cryptocurrency wallet addresses but deal with the lack of total anonymity in several ways. The feature was initially proposed by bitcoin developer Peter Todd in 2014. Since then, many cryptocurrencies have adopted incognito addresses to protect users’ identities.
Each stealth address is single-use, meaning that it is immediately deleted as soon as it is used within a transaction. This prevents the recipient’s address from being monitored or tracked by malicious entities.
Let’s look at an example of stealth addresses to understand how they work.
Monero secret addresses
Monero is a popular cryptocurrency that uses stealth addresses. Monero is a privacy coin, which means it prioritizes anonymity among its users.
When someone with a payee makes a Monero transaction, a random, one-time wallet address is generated and displayed on the blockchain ledger. While the recipient can send all their funds to their real crypto address, the address promoted on the ledger will be completely different and, therefore, untraceable.
It is worth noting here that, in secret address transactions, the sender will know exactly where the assets are going. The main purpose of stealth addresses is to keep transaction recipients private from the public eye, especially those who wish to exploit such data.
additional stealth cryptos
Many other cryptocurrencies offer secret addresses such as ZCash and Verge. When using ZCash, you can display your authentic crypto address on the blockchain or use a secret address. People who value anonymity highly may use secret addresses, but this is not necessary when transacting ZCash.
Verge’s stealth addressing (known as dual-key stealth addressing) can also be used to obscure the destinations of transactions. If you’re not a fan of ZCash or Verge, you can also use secret addresses with Dash, Navcoin, and PIVX.
What’s more, Vitalik Buterin, the founder of Ethereum, also suggested using secret addresses for ETH transactions.
Currently, Ethereum transactions displayed on the blockchain show the correct recipient address, which means the asset is pseudonymous. However, with Stealth Addresses, ETH traders can enjoy the luxury of complete anonymity. Buterin wrote on his personal blog that “Stealth addresses deliver the same privacy properties … generating a new address for each transaction, but without the need for negotiation.”