Just now! $ETH enters the era of privacy, and your on-chain financial life can finally become "invisible."

Have you ever searched your wallet address on Etherscan, not to confirm a transaction, but just to see what it looks like in others’ eyes? Your total assets, every token you’ve held, NFTs purchased, protocols interacted with, late-night DeFi operations, each airdrop claimed or abandoned—all are laid out clearly.

Imagine sending this address to a freelancer expecting payment, a DAO distributing grants, or just someone you met at a conference. You’re not just giving a payment address; you’re sharing a complete on-chain financial profile. The reason is that, like $ETH and most public blockchains, each address is essentially a public ledger.

Most people have felt this discomfort. They hesitate before copying an address, some create a dedicated “receiving” wallet, others transfer funds in advance to avoid exposing too much balance information. This instinct isn’t limited to native crypto users. A 2023 survey of 15,000 people worldwide showed that 83% value data privacy, but only 45% trust existing internet services.

ERC-5564 is designed to solve this address linkage problem. It brings native privacy addresses into $ETH, allowing you to receive funds without exposing your main wallet each time. The core issue is that an address permanently records all your activity. So why must you reuse the same address repeatedly?

In the real world, bank accounts work similarly: people need your account, which usually remains constant, gradually becoming a complete record of your income and expenses. The difference is that only you and the bank see it. On $ETH, wallet addresses are structurally identical—they are permanent accounts in the global network state. Others send transfers to an address; since the address doesn’t change, all transactions are recorded under the same public address. Researchers call this the “glass bank account” problem.

In early crypto, this might only reveal basic transfer history. But today, blockchain has evolved into lending markets, NFT platforms, governance systems, payments, and identity layers. The information an address can reveal is far richer than a few years ago. A common analogy in privacy research: imagine playing Battleship on the blockchain, where every move is public. Rules are faithfully enforced, and everything is recorded, but when both players see each other’s ship positions, strategy disappears.

ERC-5564 doesn’t aim to eliminate $ETH’s transparency nor introduce complex balance encryption or privacy pools. It focuses on a narrower, more practical issue: reducing automatic linkage at the receiving layer. Its core logic is simple: instead of directly giving out your wallet address, you provide a secret meta-address. This meta-address contains cryptographic information that can generate a unique, temporary receiving address for each transaction.

On-chain, it looks like funds are sent to a new, unused account. To the network, everything remains normal. The change is that each payment flows to a different address, preventing continuous accumulation in a single permanent account.

Does $ETH really need this feature? User behavior provides the answer. Take Tornado Cash, for example—a mixing protocol where users deposit funds and withdraw to new addresses to break linkages. Despite sanctions and strict scrutiny, it handled over $25 billion in flows by 2025. This shows users are willing to accept legal and reputational risks to isolate transactions from their main wallet.

Similarly, Railgun uses zero-knowledge proofs to enable private transactions, hiding balances and transfer details. By 2025, Railgun’s locked value remained around $70 million, with over $20 billion in total transactions. In private receiving, Umbra has implemented application-layer private payments on $ETH, generating over 77,000 active secret addresses by 2026.

While these figures may seem modest compared to the entire market, they demonstrate a strong user demand for “isolation.” All these tools involve compromises: mixing requires deposits and withdrawals through separate contracts, increasing friction and reducing composability, and often operate in regulatory gray areas; ZK privacy tools are additional layers users must choose to use; Umbra proves private receiving is useful but remains an independent application, not a standard wallet feature.

On $ETH, gaining privacy always involves an extra step. ERC-5564 takes a different approach: instead of creating a new privacy protocol, it standardizes secret receiving at the wallet level.

Privacy in crypto isn’t black-and-white; it’s a spectrum of trade-offs. One end is protocols like Monero, which embed privacy into the protocol itself, hiding transaction amounts and obfuscating sender and receiver addresses by default. Zcash introduces shielded transactions using zero-knowledge proofs, allowing users to choose between transparent and private transactions—still a separate mode.

$ETH is fundamentally different. From day one, it prioritized transparency and composability. This openness fueled the rapid growth of DeFi, NFTs, and DAOs, but at the cost of structural address linkages. Privacy ecosystems have to be built outside protocols. ERC-5564 signals a shift: instead of adding privacy layers externally, it embeds privacy as a core component, especially at the receiving layer.

If Monero treats privacy as fundamental, Zcash makes it optional; ERC-5564 makes privacy a standard part of wallet infrastructure. Industry narratives are evolving. The debate isn’t about whether blockchains should be fully transparent or fully private, but about where privacy should be, how much is needed, and how it coexists with verifiability and composability.

Privacy isn’t just about hiding transactions; it fundamentally changes incentives and power distribution within financial systems. From this perspective, privacy unlocks three core elements.

On transparent blockchains, all operations are visible. This may seem trivial, but it’s not. When all transaction data is public, the biggest beneficiaries aren’t ordinary users but participants with top-tier data analysis tools—hedge funds, MEV bots, analytics firms, and AI models. Ordinary users’ behaviors become signals, observed, modeled, and exploited by sophisticated actors, creating structural asymmetries.

Privacy limits this value extraction based solely on transaction visibility, restoring competition based on price and risk, fostering healthier markets.

Second, privacy can facilitate capital formation, which transparent systems can’t. Retail investors might tolerate full transparency, but institutional users never will. If every position is monitored in real-time, funds can’t effectively deploy capital in DeFi; if hedging strategies are tracked, strategic confidentiality is impossible.

Corporations face similar issues. If supplier relationships are visible to competitors, companies can’t tokenize invoices on public ledgers; if salary structures are public, on-chain payroll becomes unfeasible. Transparency supports experimentation but hampers autonomous decision-making. This echoes the saying: “Token transfers across chains are easy; keys are hard.” Transferring assets on public chains is simple, but in private systems, once outside privacy, historical transactions are exposed, causing friction.

Users who value privacy prefer environments where transaction histories aren’t exposed upon exit, creating new network effects. Traditional blockchain competition focuses on throughput, fees, and developer tools; privacy introduces a new dimension—information isolation. Larger private, anonymous pools hold more value, and liquidity begins to concentrate there.

Third, selective disclosure—currently a binary choice: either fully public or fully private. Cryptography introduces a third option: prove certain facts without revealing underlying data.

Protocols can prove solvency without revealing all positions; exchanges can demonstrate reserves without exposing account balances; users can prove compliance without revealing all transactions. This reduces systemic data hoarding, lowers the trade-offs between privacy and regulation, and opens new financial applications.

For example, private lending markets could enforce collateral and liquidation rules while hiding borrower identities; platforms like Aleo and Secret Network are experimenting with confidential DeFi. On-chain dark pools can match trades without revealing order sizes or directions beforehand; projects like Renegade are building such infrastructure to prevent front-running.

Regulatory-stablecoins can provide legal access for authorities while preventing the public from mapping user behavior—Paxos, Aleo’s private stablecoins, and Zcash’s viewing keys explore this. Invoice tokenization for trade finance can prove invoices are not double-funded without revealing supplier relationships; Canton Network and similar enterprise solutions are piloting such confidential infrastructure.

All these developments will influence long-term behavior. Transparency links identities and financial actions permanently, reducing users’ willingness to experiment, as behaviors can’t be decoupled from long-term identities. Privacy restores the separation between participation and permanent exposure, enabling actions without recording every decision on an immutable public record.

The original goal of transparency was verifiability. Native encryption with privacy preserves verifiability while supporting institutional capital and selective disclosure. ERC-5564 isn’t about turning $ETH into a privacy chain but about enabling programmable, lightweight, native privacy for receiving funds.