Ethereum enters the era of secrecy

The situation is about to change, where the single payment address you provide constitutes a complete on-chain financial life.

Author: Vaidik Mandloi

Compiled by: Luffy, Foresight News

Original title: Ethereum enters an era of anonymity; your receiving address will never be exposed again.

Have you ever opened Etherscan to search your wallet address, not to check transactions, but just to see what it looks like to outsiders?

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

Imagine sending this address to a freelancer who's going to pay you, a DAO that's funding you, or even someone you just met at a conference. You're not just handing over a payment address; you're handing over a complete on-chain financial life.

The reason is simple: like most public blockchains, each address on Ethereum is essentially a public ledger.

Most people have experienced this awkwardness. They hesitate for a second before pasting their wallet; some simply open a "new wallet" specifically for receiving payments; and others will move their funds beforehand to avoid revealing too much information about their balance.

This instinct isn't limited to native encryption 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 designed to solve this address association problem. It brings native covert addresses to Ethereum: a standard that allows you to receive payments without having to expose your main wallet every time.

What exactly did ERC-5564 bring?

The core issue is that an address will permanently record all your actions. So why would you reuse the same address?

Think about how you receive payments in the real world: when someone transfers money to your bank account, they need your account number, and this account number doesn't change every time you receive a payment. Over time, your bank account becomes a complete record of your income, spending, and savings. The difference is: only you and the bank can see it.

On Ethereum, wallet addresses have the same structure: they are permanent accounts in the network's global state. When someone transfers money to you, they need your address; the address remains the same, and all transactions are recorded under the same public address.

Researchers call this the "glass bank account" problem. The problem is not that transactions are visible, but that all actions are automatically linked to a nearly unchanging address.

In the early days of the crypto world, this only exposed basic transaction records. But later, blockchain evolved into lending markets, NFT platforms, governance systems, and layers for payments and identity. Today, an address can reveal far more information than it did a few years ago.

A common analogy in privacy research is this: imagine playing a game of naval chess on a 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 pieces, strategy disappears.

The system runs exactly as designed, but the experience has been completely changed because transparency has eliminated privacy.

The same principle applies to financial collaborations. Not every payment needs to include the entire history of an address.

ERC-5564 does not attempt to eliminate Ethereum's transparency, nor does it introduce complex designs such as balance encryption or privacy pools. It focuses on a narrower, more practical problem: reducing autocorrelation at the collection layer.

The core logic is very simple: instead of directly giving the other party your wallet address, you provide a hidden meta address. This meta address is not the receiving target; it contains public-key cryptographic information to generate a unique temporary receiving address for you.

In other words, when someone pays you, the money isn't sent to your publicly accessible main wallet, but rather to a completely new address generated specifically for this transaction. On the blockchain, it's like transferring the money to a new account that has never been used before.

For the network, everything remains the same. The only change is that each payment is sent to a different address and is no longer continuously recorded in a single permanent account.

Does Ethereum really need it?

The answer can be found by looking at user behavior.

Take Tornado Cash as an example: a mixing protocol allows users to deposit funds into a public pool and then withdraw them to a new address, severing the link between sending and receiving. Even under sanctions and intense scrutiny, Tornado Cash still processed over $2.5 billion in transactions in 2025. This demonstrates that users are willing to bear legal and reputational risks to keep their transactions separate from their main wallets.

Let's look at Railgun: it uses zero-knowledge proofs to achieve private transactions, keeping balances and transaction details confidential. In 2025, Railgun's total value locked (TVL) stabilized at $70 million, with a cumulative trading volume exceeding $2 billion.

In terms of covert payments, Umbra implements application-layer covert payments on Ethereum: users post confidential information and receive payments using one-time addresses. As of 2026, Umbra had generated over 77,000 active covert addresses.

These figures are not huge relative to the overall market, but they are enough to illustrate that users have a strong need for "isolation".

At the same time, these tools all involve compromises:

• Mixing coins requires entering and exiting separate contracts, increasing friction, impairing composability, and falling into a regulatory gray area.
• ZK privacy tools are still an additional layer, and users must actively choose to use them.
• Umbra has proven that covert payments are useful, but it's only a standalone application, not a wallet standard.

On Ethereum, obtaining privacy always requires an extra step.

ERC-5564 took a different approach: instead of creating a new privacy protocol, it standardized covert payment collection at the wallet level.

Where does Ethereum stand in the privacy field?

Privacy in the crypto world is not black and white, but rather a spectrum of trade-offs.

At one end of the spectrum are protocols like Monero, which embed privacy directly into the underlying layer. Transaction amounts are hidden, and sender and receiver addresses are obfuscated. Privacy is not optional, but enforced by design. Users do not need to opt in to enable privacy protection, as confidentiality is the network's default setting.

In addition, there is Zcash, which introduces shielded transactions using zero-knowledge proofs. Zcash allows users to choose between transparent and private transactions, but it operates in a dedicated shielded pool, rather than throughout the system. This architecture supports confidentiality, but it remains a standalone pattern, not a fundamental behavior of the network.

Ethereum is completely different; it prioritizes transparency and composability from day one.

It is this openness that has enabled the rapid emergence of DeFi, NFTs, and DAOs. The cost is structural interconnectedness, meaning that privacy ecosystems can only be built outside of protocols.

ERC-5564 marks a shift in thinking: instead of adding an external privacy layer, privacy is integrated as a fundamental component into Ethereum's existing design, especially in the payment layer.

If Monero considers privacy as fundamental, and Zcash as an optional mode, then ERC-5564 makes privacy an infrastructure within the wallet standard, rather than relying on a separate chain or application add-on.

The industry narrative is also evolving: the debate is no longer about whether public blockchains should be completely transparent or completely private, but rather about where privacy should be, how much is needed, and how it can coexist with verifiability and composability.

What benefits can privacy bring to users and the market?

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

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

Once all transaction data is made public, the biggest beneficiaries will not be ordinary users, but rather those participants with the best data analysis tools, such as hedge funds, MEV bots, analytics firms, and AI models. The behavior of ordinary users will be made public, while these seasoned participants will observe, model, and extract value from it.

This will cause structural asymmetry.

The problem is not transparency itself, but that transparency turns every economic activity into a public signal, leading to strategies developed around these signals and the exploitation of them for profit.

When transactions are less susceptible to abuse, competition among participants shifts from who possesses the most advanced monitoring tools to focusing on price and risk. This leads to healthier and fairer market behavior. This is the first step towards privacy: it limits the appropriation of value simply because transaction activity is visible.

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

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

If every position can be monitored in real time, funds cannot effectively invest in the DeFi space. If a fund holds a certain asset, the market may act against it; if a fund hedges, competitors can track the hedging operations. Strategy protection becomes impossible. The same logic applies to enterprises. If supplier relationships are visible to competitors, companies cannot tokenize invoices on a public ledger; if compensation structures are publicly transparent, companies cannot process payroll on-chain. Transparent systems are conducive to experimentation but detrimental to autonomous decision-making.

This confirms the saying that "token cross-chain is easy, but key cross-chain is difficult".

On public blockchains, transferring assets between different networks is very simple because all information is publicly available. However, in private systems, historical transaction records are exposed once the user leaves the privacy domain, which can cause friction. Privacy-conscious users prefer to remain in environments where transaction records are not leaked upon exiting.

This situation will generate a new type of network effect.

Competition in traditional blockchains focuses on throughput, fees, and developer tools. Privacy, on the other hand, introduces competition in information isolation. The larger the private set of anonymity, the higher the value remaining within it. Liquidity also begins to concentrate in this area because confidentiality increases with scale.

The third type of unlocking can be called selective disclosure.

In today's systems, the choice of privacy is very binary: either everything is public or everything is hidden. But cryptography introduces a third option: you can prove things without revealing the underlying data.

Agreements can demonstrate their solvency without disclosing all their positions. Exchanges can demonstrate their reserves without disclosing account balances. Users can demonstrate compliance with certain rules without disclosing their entire trading history.

This reduces the emergence of systemic data honeypots. At the same time, it reduces the trade-offs between privacy and regulation, thus opening the door to entirely new areas of financial applications.

For example, private lending markets can enforce collateral rules and liquidation logic while concealing the identity of individual borrowers; platforms like Aleo and Secret Network are experimenting with this through confidential DeFi designs.

On-chain dark pools can match transactions without revealing the size or direction of orders before execution. This is exactly the crypto trading infrastructure that Renegade is building to prevent traders from being preemptively traded simply because their intentions are visible.

Compliant stablecoins can grant regulatory access through appropriate legal procedures while preventing the public from learning about user behavior through transaction graphs. Private stablecoin projects such as Paxos and Aleo, as well as Zcash's pioneering selective disclosure model based on key viewing, are exploring this concept.

Trade finance platforms can tokenize invoices and prove they haven't been used for double financing without revealing supplier relationships. Enterprise networks like Canton Network are piloting this confidential infrastructure with large financial institutions, enabling businesses to share ledger efficiency without disclosing sensitive business data.

All of these can lead to long-term behavioral effects.

Transparency permanently links identity and financial behavior. Over time, this reduces their willingness to try new things because the behavior cannot be decoupled from their long-term identity. Privacy, on the other hand, restores the separation between engagement and permanent exposure. It allows users to act without having every decision recorded in an immutable public archive.

Conclusion

The initial purpose of transparency is verifiability. Native privacy encryption, while retaining verifiability, supports institutional capital and selective disclosure. ERC-5564 is not about turning Ethereum into a privacy chain, but about giving Ethereum programmable, lightweight, and native payment privacy.

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