Are Stealth Addresses the Secret to Bitcoin Privacy?

Hearn's reaction echoes others who have seen the block chain improvements proposed in a new paper by noted bitcoin developer Peter Todd, based on input from: Gregory Maxwell, Adam Back and Amir Taaki.

Released via SourceForge on 6th January, the paper details the creation of a stealth address: a new type of bitcoin address that is being heralded as "Revolutionary" for its ability to allow more anonymous payments on the block chain.

Addressing reuse The primary benefit, the paper says, is that payors would not learn of other payments made to stealth addresses, while third-parties would not glean any information from the transaction at all.

The paper is fast gaining the attention of developers for its perceived potential to curb the privacy problems related to address reuse.

Elliptic curves Stealth addresses rely on the Elliptic curve Diffie-Hellman algorithm, originally used by Bitcointalk.org forum member ByteCoin, to generate an anonymous key agreement between payors and payees, enabling them to share a "Secret" that can be used for them to divide funds.

The payee publishes a public key 'Q' and a corresponding private key 'd'. The payer generates a key pair where the private key = 'e' public key of 'P' where 'P' is the transaction.

The payee calculates 'S=dP' to get 'S'. With the secret shared, either side can calculate an offset to 'Q', which acts as the address.

The payee then checks the transaction, and if the address matches, spends the funds.

Going forward, Todd says he'll work with collaborators Gregory Maxwell and Adam Back to come to a reasonable specification for a bitcoin improvement protocol.

For more on stealth addresses, read the full text of the paper here.