Stealth addresses is a method by which additional security can be granted to user of a cryptocurrency. For example, if Alice wanted to receive 5 tokens of a cryptocurrency from Bob as a payment for a job, but didn’t want anyone else to know about it, then she could send Bob a stealth address. When Bob sends the funds to Alice, a random unique address is created where the funds will be shown to have gone on the blockchain. What this means is, there is no link between the stealth address and any other transaction address Alice may have used. Therefore, this provides a layer of anonymity because no one will be able to see how Alice spent her received funds.
Conversely, if Alice had sent Bob her public address instead, she would still have received her payment in full. However, if I somehow knew Alice’s public address, I would then be able to track the way she spent those funds she received. For many, the idea of someone possibly being able to track how they spend their funds is alarming, and is the reason why stealth addresses are so powerful. However, there are some disadvantages to stealth addresses.
The Downside of Stealth Addresses
Stealth addresses are a double-edged sword. On one hand, they are a powerful additional method of security for genuine users. On the other hand, they are powerful additional method of security for malicious users, such as terrorist and money launderers. If you knew the public address of a user engaged in terrorist activities, it then becomes a straightforward task of tracking their transactions on the blockchain. However, if this user was instead using stealth addresses, it becomes impossible to track. In essence, the life of the user who is engaged in terrorist activities is made easier by the use of stealth addresses. The consequence of this is, potential acts of terror become more likely as funding for them are made easier.
To conclude, stealth addresses are an incredibly powerful tool for any cryptocurrency that implements them. They allow users to have the peace of mind that their transactions cannot be traced back to them. Conversely, stealth addresses also provide peace of mind to bad actors who want to use funds for illegitimate purposes.