Shielded Transaction

Shielded transactions protect financial privacy by encrypting the transaction data itself rather than merely obscuring who controls a wallet. Instead of writing a plain sender address, receiver address, and amount to the ledger, the network only records that a valid transfer occurred: no coins were created out of thin air and none were spent twice.

The mechanism behind this is a zero-knowledge proof, typically a zk-SNARK. A wallet builds a proof showing it knows a set of private inputs and outputs that balance correctly and that it holds the spending keys for those inputs, all without ever exposing the values or addresses on-chain. Validators check this proof in milliseconds, so the network stays auditable for correctness even though the underlying details stay hidden.

Zcash popularized the model with its shielded "z-addresses," which sit alongside transparent "t-addresses" that behave like ordinary public blockchain addresses. Users can also generate view keys to selectively reveal transaction history to an auditor, exchange, or tax authority without exposing it publicly, a feature that distinguishes shielded designs from fully opaque mixing services. Adoption of shielded pools has grown steadily as wallets make private sends the default option.

The main tradeoffs are computational cost, since generating proofs takes more processing power than a transparent transfer, and regulatory friction, as some exchanges restrict or delist assets that support this level of privacy.