Cryptocurrencies are digital tokens that are used for a wide variety of purposes some of which include: transactions, trading, and even loan funding.
In terms of transactions, cryptocurrencies can be used to do that in such a way that the process becomes anonymous, free from the public, and completely untraceable. This type of transaction is generally referred to as a shielded transaction.
Here, the transaction is between two shielded addresses which makes private the transaction amount, the addresses, and the memo field.
Key Takeaways
• Shielded transactions are performed by shielded addresses to ensure privacy and anonymity during the transaction.
• Addresses that are made accessible to the public are referred to as transparent addresses while those that are not, are referred to as shielded addresses.
• Zcash is an example of a cryptocurrency that has two types of transactions which are the Shielded and Unshielded transactions.
• zk-SNARKs is a feature used by Zcash that is responsible for it being able to conduct shielded transactions.
SEE ALSO: What Are The Different Prefixes For Crypto Wallet Addresses?
SEE ALSO: What You Should Know About Bitcoin Address Formats
In terms of the sender and the receiver of the transaction, both parties only know what they need to know.
For instance, the receiver of the transaction will not be aware of the sender’s address but will only be aware of the value of the crypto transaction that was sent to them.
Also, shielded addresses bring more privacy and security than transparent addresses and result in shielded transactions while transparent addresses result in unshielded transactions.
Transparent addresses are the usual crypto addresses where all vital information is made available to the public or both the receiver and the sender. The opposite of this is what is referred to as a Shielded address.
In summary, here is how the process works:
- Transparent Address to Transparent Address = Unshielded Transaction.
- Transparent Address to Shielded Address = Shielded Transaction.
- Shielded Address to Shielded Address = Shielded Transaction.
- Shielded Address to Transparent Address = Unshielded Transaction.
Features of a Crypto Shielded Address
- The private key structure is different, including a root key (sk) and other keys with different functions derived from it.
- Transaction-specific information is hidden on the chain and can only be viewed through the private keys.
- No resource model, that is, there is no Bandwidth and Energy in the address, and transactions do not consume Bandwidth and Energy.
- The only shielded transaction is supported, and other types of transactions cannot be performed, such as triggering smart contracts.
- The address does not distinguish whether it is activated or not, and there is no need to activate the address through a transaction.
A particular cryptocurrency that I will be delving into shortly below that makes use of this feature is the Zcash cryptocurrency.
SEE ALSO: What Is Crypto Forging?
A look at the Zcash Cryptocurrency
Zcash is a digital currency that is fast and confidential with low fees. The crypto claims to be the “https of blockchains,” protecting your freedom to save and spend as you like.
It also was the first project to implement zk-SNARKs, a novel form of zero-knowledge cryptography that gives its users the strongest privacy available in any digital currency.
The zk-SNARKs is an important feature of Zcash that is responsible for Zcash being able to conduct shielded transactions. A feature that is not prominent in most cryptocurrencies.
Zcash is already available on top exchanges, digital wallets, and a growing number of applications.
Linkability
The purpose of having a link between crypto transactions is defeated when you decide to make use of a shielded address which means if your transactions were to be traced to uncover some specific detail, such a move would be impossible.
It would have only been made possible if you had used a transparent address whereby an individual can easily trace the link or interconnection between two addresses as regards a transaction.
For example, if payment of 10 Zcash was made from a transparent address to another transparent address or from multiple transparent addresses to the same address, it would be easy to trace the link and find out who is making the transactions.
This however would be more difficult if the same transaction process was done between two shielded addresses because the link would be severed in the process.
Bear in mind however that this does not mean that it is entirely impossible to find the link between transactions that are done by shielded addresses.
With the right tools and technology, crypto and blockchain experts may still be able to find the link although this may be akin to finding a needle in a haystack. It would be quite tasking and difficult.
As of today, 14.5% of all transactions on the Zcash protocol are shielded transactions.
Because this number is not closer to 100%, an individual can still deduce the number of funds a shielded address may have transacted with, particularly if a shielded address transacts with a transparent address, resulting in an unshielded transaction.
For example, let us take a look at an example in which Henry sends 10 ZEC from his transparent address to Donald’s shielded address, resulting in the transaction itself being shielded.
If Donald were then to send 6 ZEC to Benita’s transparent address from the same shielded address, resulting in the unshielding of the transaction, an individual would be able to deduce that Henry initially sent Donald 10 ZEC.
This issue becomes worse if the transactions occurred at similar block numbers.
For example, if Henry sends Donald 10 ZEC in block 45012 and Donald sends Benita 6 ZEC in block 45015, there would be a high tendency that there is some sort of linkage between the two transactions.
Frequently Asked Questions (FAQs)
What types of transactions can be performed with a shielded address?
Only shielded transactions can be performed with a shielded address as other types of transactions cannot be performed.
Are Shielded transactions illegal?
No, they are not. Shielded transactions are simply done to maintain privacy and anonymity and are very much legal.
Final Thoughts
Shielded transactions are done using shielded addresses to maintain privacy and are utilized by some cryptocurrencies such as Zcash and Tron.
This activity is done to remove all traces of information as regards the transaction activity to the sender.
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