Written by: Vaidik Mandloi

Translated by: Luffy, Foresight News

Have you ever opened Etherscan and searched for your wallet address, not to check transactions, but just to see what it looks like in the eyes of outsiders?

Your current balance, every token you have ever held, NFTs you purchased, protocols you interacted with, those late-night DeFi attempts, every claimed or ignored airdrop... everything is there, completely public.

Imagine sending this address to a freelancer who is going to pay you, to a DAO that is going to fund you, or even just to someone you just met in a meeting. You are not just giving a payment address but an entire set of your complete on-chain financial life.

The reason is simple: Ethereum, like most public chains, treats every address as essentially a public ledger.

Most people have felt this discomfort. They hesitate for a second before pasting their wallet; some simply create a "new wallet" for receiving; others will move some funds first, to avoid revealing too much information about their balance.

This instinct is not limited to native crypto users. A 2023 global survey by Consensys covering 15,000 people showed that 83% value data privacy, but only 45% trust existing internet services.

ERC-5564 was created specifically to address this issue of address association. It natively brings stealth addresses to Ethereum: a standard that allows you to receive payments without exposing your main wallet each time.

What does ERC-5564 actually bring?

At the core of the issue is that one address will permanently record all your actions. So why do we have to keep using the same address?

Think about how you receive money in the real world: someone needs your bank account number to make a transfer, and this account does not change every time you receive money. Over time, the bank account has become a complete record of your income, spending, and savings. The difference is: only you and the bank can see it.

On Ethereum, the structure of the wallet address is the same: it is a permanent account in the global state of the network. Others need the address to send you money; the address does not change, and all transactions are recorded under the same public address.

Researchers refer to this as the "glass bank account" problem. The issue is not that transactions are visible, but that all actions are automatically bound to an almost unchanging address.

In the early days of the crypto world, this only exposed basic transfer records. But later, blockchains evolved into lending markets, NFT platforms, governance systems, payment and identity layers. Today, the amount of information that one address can expose is much richer than it was a few years ago.

In privacy research, there's a common analogy: imagine you are playing a game of Battleship on the blockchain, where every move is publicly visible. The rules are enforced correctly, and the system faithfully records everything. But when both sides can see each other's ship positions, strategy disappears.

The system operates exactly as designed, but the experience changes completely because transparency eliminates privacy.

Financial collaboration is the same. Not every payment needs to be accompanied by the entire history of an address.

ERC-5564 does not attempt to eliminate the transparency of Ethereum, nor does it introduce complex designs like balance encryption or privacy pools. It focuses on a narrower, more practical issue: reducing automatic association at the payment layer.

The core logic is very simple: you no longer directly give the other party your wallet address, but instead, you provide a stealth meta-address. This meta-address is not the payment target; it contains public key cryptographic information to generate a unique temporary payment address for you.

In other words, when the other party pays you, the money is sent not to your publicly visible main wallet, but to a newly generated address specifically for this transaction. On-chain, it looks like it was sent to a completely unused new account.

To the network, everything appears normal. The change is that each payment goes to a different address, and does not continuously record on a permanent account.

Does Ethereum really need it?

Looking at user behavior provides the answer.

Take Tornado Cash as an example: a mixing protocol that allows users to deposit funds into a public pool, then withdraw to a new address, breaking the association between sending and receiving. Even after facing sanctions and severe scrutiny, Tornado Cash still handled over $2.5 billion in capital flow in 2025. This indicates that users are willing to take legal and reputational risks to keep their transactions separate from their main wallets.

Next, look at Railgun: it uses zero-knowledge proofs to achieve private transactions without disclosing balances or transfer details. By 2025, Railgun's total locked value stabilized at $70 million, and its cumulative transaction volume exceeded $2 billion.

In terms of stealth payments, Umbra has achieved application-level private payments on Ethereum: users publish stealth information and receive payments using one-time addresses. As of 2026, Umbra has generated over 77,000 active stealth addresses.

These numbers may not be huge relative to the entire market, but they sufficiently illustrate that users have a strong need for "a sense of separation."

At the same time, these tools all have trade-offs:

• Mixing requires entering and exiting separate contracts, increasing friction and harming composability, and is in a regulatory gray area.
• ZK privacy tools remain an additional layer; users must actively choose to use them.
• Umbra has demonstrated that stealth payments are useful, but it is just a standalone application, not a wallet standard.

On Ethereum, gaining privacy will always require an extra step.

ERC-5564 took another route: instead of creating a new privacy protocol, it standardized stealth payments at the wallet layer.

What position does Ethereum hold in the privacy domain?

Privacy in the crypto world is not black or white; it is a spectrum of trade-offs.

At one end of the spectrum are protocols like Monero that embed privacy directly into the base layer. Transaction amounts are hidden, and the addresses of senders and receivers are obfuscated. Privacy is not optional but enforced by design. Users do not need to choose to enable privacy protection because confidentiality is the network's default state.

Additionally, there is Zcash, which introduces shielded transactions using zero-knowledge proofs. Zcash allows users to choose between transparent and private transactions, but operates within dedicated shielded pools rather than across the entire system. This architecture supports confidentiality, yet remains an independent mode rather than the network's basic behavior.

Ethereum, on the other hand, is fundamentally different; it has prioritized transparency and composability from day one.

It is this openness that drove the rapid explosion of DeFi, NFTs, and DAOs. The cost is structural association, with privacy ecosystems needing to be built outside the protocols.

ERC-5564 signifies a shift in thinking: no longer externalizing privacy layers, but embedding privacy as a foundational component within Ethereum’s existing design, especially at the payment layer.

If Monero treats privacy as foundational and Zcash treats it as an optional mode, then ERC-5564 transforms privacy into the infrastructure of wallet standards rather than relying on independent chains or applications.

The narrative of the industry is also evolving: the debate is no longer about "should public chains be completely transparent or fully private," but rather: where should privacy exist, how much is needed, and how to coexist with verifiability and composability.

What can privacy bring to users and the market?

Privacy is not just about hiding transactions; it fundamentally changes the incentives and power distribution within the financial system. In this sense, privacy unlocks three core elements that we can explore one by one.

On a transparent blockchain, all operations are visible. This may seem inconsequential, but it is not.

When all transaction data becomes public, the greatest beneficiaries are not average users but participants with the best data analysis tools, such as hedge funds, MEV bots, analytics firms, and AI models. The behaviors of ordinary users are made public, while these savvy participants observe, model, and extract value from it.

This results in structural asymmetry.

The issue is not with transparency itself, but rather that transparency turns every economic action into a public signal, leading to strategies evolved around these signals that exploit them for profit.

When transactions cannot be readily abused, competition between participants no longer centers around who has the most advanced monitoring tools, but rather around prices and risks. This fosters healthier and fairer market behavior. This is the first step of privacy: it limits value extraction that arises merely from visible trading activities.

The second unlocking mechanism is even more significant. Privacy can facilitate capital formation, while transparent systems cannot achieve this.

Retail investors may tolerate complete transparency, but institutional users never will.

If every position can be monitored in real-time, funds would be unable to effectively deploy capital in the DeFi space. If a fund holds a specific asset, it might be detrimental to the market; if a fund engages in hedging, competitors can track those hedging actions. Strategy protection would become impossible. The same principle applies to businesses. If supplier relationships are visible to competitors, companies cannot tokenize invoices on a public ledger; if the pay structure is exposed, companies cannot conduct salary payments on-chain. Transparent systems favor experimentation but hinder autonomous decision-making.

This corroborates the saying, "cross-chain tokens are easy, but cross-chain keys are hard."

On public chains, it is quite simple to transfer assets between different networks since all information is public. However, in private systems, once one leaves the privacy domain, historical transaction records will be exposed, leading to friction. Privacy-conscious users are more inclined to stay within environments where their transaction history will not be disclosed upon exit.

This situation creates a new type of network effect.

Traditional blockchain competition is reflected in throughput, fees, and developer tools. Privacy introduces competition in terms of information isolation. The larger a private anonymous set grows, the higher the value that remains within it. Liquidity also begins to concentrate in that area because confidentiality increases with scale.

The third unlocking we can call selective disclosure.

In today's systems, the choice for privacy is very binary: either fully public or entirely hidden. However, cryptography introduces a third option: you can prove certain things without disclosing the underlying data.

Protocols can demonstrate their solvency without revealing all the holdings they have. Exchanges can prove their reserves without publicly disclosing their account balances. Users can prove they have complied with certain rules without disclosing their entire transaction history.

This reduces the emergence of systemic data honeypots. Moreover, it lowers the trade-offs between privacy and regulation, thereby opening doors to entirely new areas of financial applications.

For instance, private lending markets can enforce collateral rules and liquidation logic while hiding the identities of individual borrowers; platforms like Aleo and Secret Network are experimenting in this direction through confidential DeFi designs.

On-chain dark pools can match trades without displaying order size or direction before execution; this is precisely the crypto trading infrastructure that Renegade is building, aiming to prevent traders from being frontrun simply because their intentions are visible.

Compliant stablecoins can provide access to regulators under appropriate legal procedures while preventing the public from understanding user behavior through trading graphs. Private stablecoin projects like Paxos and Aleo, as well as Zcash’s pioneering selective disclosure model achieved through viewing keys, are exploring this concept.

Trade finance platforms can tokenize invoices and prove that invoices have not been used for double financing without disclosing supplier relationships. Enterprise networks like Canton Network are collaborating with large financial institutions to pilot this confidential infrastructure, enabling companies to share ledger efficiencies without revealing sensitive commercial data.

All of this will lead to long-term behavioral impacts.

Transparent systems permanently associate identity with financial behavior. Over time, this reduces their willingness to try new things, as behavior cannot be separated from long-term identity. Privacy re-establishes the separation between participation and permanent exposure. It allows users to act without having every decision recorded in an immutable public archive.

Conclusion

The intent of transparency is verifiability. Native privacy encryption supports institutional capital and selective disclosure while maintaining verifiability. ERC-5564 does not aim to turn Ethereum into a privacy chain, but rather to give Ethereum programmable, lightweight, native payment privacy.