Ethereum enters the era of privacy; your payment address will no longer expose your privacy.

ERC-5564 and the Future of Privacy

Written by: Vaidik Mandloi

Translated by: Luffy, Foresight News

Have you ever searched your wallet address on Etherscan—not to check transactions, but just to see what it looks like in the eyes of others?

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

Imagine sending this address to a freelancer who’s paying you, a DAO funding you, or even just to someone you just met at a meeting. You’re not just giving out a payment address; you’re exposing your entire on-chain financial life.

The reason is simple: like most public blockchains, Ethereum addresses are essentially open ledgers.

Most people have felt this awkwardness. Hesitating for a second before pasting their wallet; some even create a “new wallet” specifically for receiving; others move funds first to avoid revealing too much balance information.

This instinct isn’t limited to native crypto users. A 2023 global survey by Consensys covering 15,000 people shows: 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 Ethereum: a standard that allows you to receive funds without exposing your main wallet every time.

What exactly does ERC‑5564 bring?

The core issue is that one address permanently records all your actions. So why must 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, which doesn’t change every time. Over time, your bank account becomes a complete record of your income, expenses, and savings. The difference is: only you and the bank see it.

On Ethereum, wallet addresses are structurally the same: they are permanent accounts in the global state of the network. When someone sends you money, they need your address; the address remains the same, and all transactions are recorded under that one public address.

Researchers call this the “Glass Bank Account” problem. The issue isn’t just that transactions are visible; it’s that all actions are automatically bound to a nearly unchangeable address.

In early crypto, this only exposed basic transfer records. But as blockchain evolved into lending markets, NFT platforms, governance systems, payments, and identity layers, the information exposed by a single address has become much richer than a few years ago.

A common analogy in privacy research: imagine playing Battleship on the blockchain, where every move is public. The rules are correctly enforced, and the system faithfully records everything. But when both players see each other’s ship positions, strategy disappears.

The system operates as designed, but the experience is completely different because transparency destroys privacy.

The same applies to financial cooperation. Not every payment needs to carry the entire history of an address.

ERC‑5564 does not attempt to eliminate Ethereum’s transparency nor introduce complex designs like encrypted balances or privacy pools. It focuses on a narrower, more practical problem: reducing automatic linkage at the receiving layer.

The core logic is simple: instead of giving your counterparty your wallet address directly, you give a secret meta-address. This meta-address isn’t the actual recipient; it contains cryptographic information to generate a unique, temporary receiving address for you.

In other words, when someone pays you, the funds aren’t sent to your public main wallet but to a brand-new address generated solely for that transaction. On-chain, it looks like the transfer went to a never-before-used new account.

From the network’s perspective, everything remains the same. The difference is that each payment is sent to a different address, not continuously recorded under a single permanent account.

Does Ethereum really need this?

Looking at user behavior provides the answer.

Take Tornado Cash as an example: a mixing protocol where users deposit funds into a public pool and then withdraw to a new address, breaking the link between sender and receiver. Despite sanctions and strict scrutiny, Tornado Cash processed over $2.5 billion in funds by 2025. This shows users are willing to accept legal and reputational risks to separate transactions from their main wallets.

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 $2 billion in total transaction volume.

In private receiving, Umbra has implemented application-layer private payments on Ethereum: users publish confidential info and receive payments via one-time addresses. By 2026, Umbra had generated over 77,000 active private addresses.

While these figures are modest compared to the entire market, they demonstrate a strong user demand for “isolation.”

However, all these tools come with compromises:

• Mixing requires deposits and withdrawals through separate contracts, increasing friction, reducing composability, and operating in regulatory gray areas.
• ZK privacy tools add an extra layer, requiring users to actively choose to use them.
• Umbra proves private payments are useful but remains an independent application, not a wallet standard.

On Ethereum, achieving privacy always involves an extra step.

ERC‑5564 takes a different approach: instead of building new privacy protocols, it standardizes private receiving at the wallet level.

Where does Ethereum stand in the privacy space?

Privacy in the crypto world isn’t black-and-white; it’s a spectrum of trade-offs.

At one end are protocols like Monero, which embed privacy directly into the protocol. Transaction amounts are hidden, and sender and receiver addresses are obscured. Privacy isn’t optional but enforced by design. Users don’t need to opt-in because confidentiality is the network’s default.

Additionally, Zcash introduced shielded transactions using zero-knowledge proofs. Zcash allows users to choose between transparent and private transactions, but it operates within dedicated shielded pools rather than across the entire system. This architecture supports privacy but remains a separate mode rather than a core network feature.

Ethereum, by contrast, has prioritized transparency and composability from day one.

This openness has fueled the rapid growth of DeFi, NFTs, and DAOs. The cost is structural linkage; privacy ecosystems can only be built outside the protocol.

ERC‑5564 signals a shift: instead of layering privacy on top, it embeds privacy as a fundamental component within Ethereum’s existing design, especially at the receiving layer.

If Monero treats privacy as fundamental, and Zcash offers optional privacy modes, then ERC‑5564 makes privacy a standard infrastructure within wallets—no separate chains or applications needed.

Industry narratives are evolving: the debate isn’t about whether public chains should be fully transparent or fully private, but about where privacy should be, how much is needed, and how it can coexist with verifiability and composability.

What can privacy truly offer users and markets?

Privacy isn’t just about hiding transactions; it fundamentally alters incentives and power distribution in financial systems. In this sense, privacy unlocks three core elements, each worth exploring.

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 those with the best data analysis tools—hedge funds, MEV bots, analytics firms, and AI models. Ordinary users’ actions are exposed, while seasoned participants observe, model, and extract value.

This creates structural asymmetries.

The problem isn’t transparency itself but that transparency turns every economic action into a public signal, enabling strategies that develop around these signals and profit from them.

When transactions can’t be easily abused, competition shifts from who has better monitoring tools to who manages price and risk better. This leads to healthier, fairer markets. That’s the first benefit of privacy: it limits value extraction based solely on transaction visibility.

The second, more significant unlock is that privacy can facilitate capital formation, which transparent systems cannot.

Retail investors might tolerate full transparency, but institutional players never will.

If every position can be monitored in real-time, funds can’t effectively deploy capital in DeFi. If a fund holds an asset, the market might react unfavorably; if it hedges, competitors can track the hedge. Strategy protection becomes impossible. The same applies to corporations: if supplier relationships are visible, they can’t tokenize invoices on a public ledger; if salary structures are transparent, payroll on-chain becomes unfeasible. Transparent systems favor experimentation but hinder autonomous decision-making.

This confirms the saying: “Token cross-chain is easy; key cross-chain is hard.”

On public chains, since all information is public, transferring assets across networks is straightforward. In private systems, once you leave the privacy domain, transaction history is exposed, creating friction. Privacy-conscious users prefer environments where their transaction history isn’t leaked upon exit.

This creates a new network effect.

Traditional blockchain competition focuses on throughput, fees, and developer tools. Privacy introduces competition in information isolation. Larger private, anonymous pools hold more value; liquidity begins to concentrate there, as confidentiality scales with size.

The third unlock is what we might call selective disclosure.

Today’s systems are binary: either everything is public or everything is private. Cryptography introduces a third option: you can prove certain facts without revealing underlying data.

Protocols can demonstrate solvency without revealing all holdings. Exchanges can prove reserves without disclosing account balances. Users can prove compliance with rules without revealing all transaction history.

This reduces systemic data hoarding and lowers the trade-offs between privacy and regulation, opening doors to new financial applications.

For example, private lending markets can enforce collateral and liquidation rules while hiding borrower identities. Platforms like Aleo and Secret Network are experimenting with confidential DeFi designs.

On-chain dark pools can match trades without revealing order size or direction beforehand—an infrastructure being built by Renegade to prevent front-running based on intent visibility.

Regulated stablecoins can provide authorities with access under legal procedures while preventing the public from tracking user behavior through transaction graphs. Private stablecoin projects like Paxos and Aleo, and Zcash’s selective disclosure via viewing keys, explore 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 are piloting such confidential infrastructure, enabling companies to share ledgers efficiently without exposing sensitive commercial data.

All these developments will have long-term behavioral impacts.

Transparent systems permanently link identities and financial actions. Over time, this reduces users’ willingness to experiment because actions can’t be decoupled from long-term identities. Privacy restores the separation between participation and permanent exposure. It allows users to act without recording every decision in an immutable public record.

Conclusion

The original goal of transparency was verifiability. Native privacy encryption, while maintaining verifiability, supports institutional capital and selective disclosure. ERC‑5564 isn’t about turning Ethereum into a privacy chain but about enabling programmable, lightweight, native privacy for receiving funds.