Shielded Transaction

Understanding Shielded Transactions

A shielded transaction is a specific type of transaction that occurs between two shielded addresses. These shielded addresses utilize zero-knowledge proofs to encrypt transaction data while still being verifiable by network nodes. The main purpose of shielded transactions is to keep the addresses, transaction amount, and memo field hidden from the public, except when migrating funds between Sprout and Sapling shielded addresses.

When funds are sent to a shielded address, the sender may or may not include an encrypted memo. However, recipients of shielded or deshielding transactions do not gain knowledge of the sender’s address through the transaction receipt in their wallet. Instead, receivers can only determine the value sent to their address and any encrypted memo included by the sender if the funds are received in shielded addresses.

Zcash is a notable example of a cryptocurrency that effectively implements shielded transactions. In Zcash, there are two types of addresses: transparent addresses and shielded addresses. Transparent addresses function similarly to public addresses in Bitcoin and interact with the Transparent Value Pool. This interaction publicly reveals transaction data, allowing anyone to view it on the Zcash blockchain at any time.

In contrast, shielded addresses encrypt transaction data and require the generation of zkSNARKs to verify the transaction’s validity. By using shielded addresses, Zcash enhances privacy and security compared to transparent addresses. As a result, a transaction between two transparent addresses would be unshielded, while a transaction between a transparent address and a shielded address, or between two shielded addresses, would be shielded. Similarly, a transaction from a shielded address to a transparent address would also be unshielded.