Stealth Address (Cryptocurrency)

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Stealth Address (Cryptocurrency)

A bitcoin stealth address is a unique wallet address that is used to increase the privacy of cryptocurrency transactions. Because bitcoin wallet addresses are public, transactions may be tracked back to them. Transactions may be traced back to you if your name or other information is publicly connected with your wallet address. A stealth address serves as a stand-in for your wallet address.

Key Takeaways

  • Stealth addresses are a method of concealing public blockchain transactions by establishing unique addresses for each transaction.
  • Transactions on blockchain networks are pseudonymous, which means that once personal information is connected to a bitcoin key, transactions using that key may be tracked on the blockchain.
  • Concerns about hackers obtaining access to digital wallets and stealing cryptocurrency assets have contributed to the rise in popularity of stealth addresses.
  • Stealth addresses have drawn the attention of regulators and tax officials since they might be used for illegal activity.

Understanding a Stealth Address

A blockchain network is a distributed ledger, comparable to a shared database, that contains the addresses of the receiver and sender as well as the transaction amount. This information is available to all network members. This is not always a negative thing, but an active observer with purpose may track transactions and perhaps identify persons involved.

A conventional bitcoin transaction necessitates the use of two addresses, one from each side. The transaction does not contain address owner information since the network does not record it. This absence of data is critical to the anonymity that should be inherent in cryptocurrencies.

Transactions, however, are pseudonymous. Blockchain technology’s identity protection measures are not completely anonymous since transactions may be traced back to the addresses involved. If the identity of the address owner is revealed, the address no longer ensures anonymity.

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As an example of the advantages of a stealth address, if you want to raise cryptocurrency funding for a charity, you may need to offer the public address to which cryptocurrency contributions may be transferred. This will link your wallet address to your name, making it possible for others to trace your transactions. They can also see where you transfer the money you raise.

Stealth addresses, like utilizing a post office box to conceal your home address, are deceiving. They provide an additional degree of protection for bitcoin users.

You might have donations delivered to a stealth address for your charity fundraising requirements without disclosing your personal wallet address if you created a stealth address.

How Is a Stealth Address Different?

In a normal bitcoin transaction, the sender sends money to the recipient’s wallet address. A wallet address is a public, trackable address. To address growing worries about this capability, Peter Todd suggested stealth addresses in 2014.

When you utilize a stealth address, the blockchain records the transaction and adds the proxy address, which conceals your public address. If a cryptocurrency wallet supports it, a stealth address may be generated via several protocols or techniques.

There are various methods for generating stealth addresses. Monero, for example, employs ring signatures and RingCT—decoy output addresses and masked addresses—to make tracing the sender difficult. This is not a stealth address, but rather a method of confusing would-be trackers when employing stealth addresses.

Concerns About Stealth Addresses

Given its capacity to confound trackers and provide anonymity for honest cryptocurrency users, stealth addresses are also an appealing choice for users with dishonest or criminal intents.

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It is vital to highlight that the majority of bitcoin users are trustworthy. Chainalysis, a blockchain data analysis business, discovered that just 0.15% of bitcoin transactions in 2021 were utilized for illegal behavior, with the vast majority being frauds and stolen assets.

Keeping this in mind, regulatory agencies, tax authorities, and governments are working to establish mechanisms to safeguard honest bitcoin users. To evade taxes, for example, both privacy coins and stealth addresses have been employed. The Internal Revenue Service (IRS) reacted by launching Operation Hidden Treasure, a crackdown on Bitcoin tax avoidance.

The Department of Justice announced the formation of the National Bitcoin Enforcement Team in October 2021, with the goal of investigating unlawful behavior supported by cryptocurrency.

How Do Monero Stealth Addresses Work?

Monero has a three-tier privacy system: ring transactions, stealth addresses, and RingCT, which work in tandem to hide your address behind another and confound any would-be trackers.

What Is a Wallet Address?

Your wallet address is a publicly viewable string of randomly generated digits that anyone may use to transfer bitcoin to.

What Does a Cryptocurrency Address Look Like?

Your address is a series of alphanumeric characters, depending on the cryptocurrency you use. The popular Antpool Bitcoin mining pool address, for example, is 12dRugNcdxK39288NjcDV4GX7rMsKCGn6B.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author does not possess Monero or any other cryptocurrency as of the date this post was created.

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