Stealth addresses using nostr

The discussion revolves around a proposed protocol for improving the Stealth Address mechanism within the context of cryptocurrency transactions, specifically aiming to enhance privacy and efficiency in communication between parties involved. The protocol outlines a series of cryptographic operations and procedural steps that Alice (the sender) and Bob (the receiver) must follow to securely and privately execute transactions using stealth addresses.

The initial setup involves defining key components such as the shared secret (S), which is derived from the private and public keys of both parties. A unique aspect of this protocol is the introduction of a stealth component (c), calculated through a double SHA256 hashing process combined with a counter that increments with each new address generated by Alice for sending funds to Bob. This stealth component is crucial for generating both the stealth address public key (P) and the corresponding private key (p), ensuring that each transaction to a stealth address remains unlinkable to outside observers.

To facilitate communication, the protocol specifies that Alice must notify Bob after making a transaction, including details such as the counter used. This notification is critical for Bob to validate the transaction and retrieve the funds. It's suggested that Bob should confirm receipt, helping synchronize both parties on the transaction status. Moreover, the protocol acknowledges potential challenges in recovery scenarios, such as when Bob needs to identify transactions addressed to him without access to past notifications. Solutions include relying on notification messages stored by relays or maintaining a backup file listing all relevant transactions.

Further improvements to the Stealth Address protocol are proposed, emphasizing the necessity for signaling support for stealth transactions to prevent loss of funds. A novel concept introduced is the 'reclaim branch,' allowing senders to recover coins from transactions presumed unredeemed after a certain period. Additionally, integrating Silent Payments logic is recommended to reduce scanning efforts for Bob and increase interoperability between wallets. This approach leverages on-chain data for deriving public keys, minimizing potential errors and simplifying the overall process.

The integration of nostr notifications with Silent Payments logic could mitigate many issues associated with current Stealth Address implementations. By adopting this hybrid approach, the protocol aims to achieve a balance between user privacy and operational efficiency, facilitating seamless and secure transactions within the cryptocurrency landscape.