Shielded Address

Understanding Shielded Addresses

In the world of cryptocurrencies and blockchain technology, there is a growing interest in secure methods of conducting transactions. This interest has led to a demand for alternative ways to carry out financial transactions that are both secure and anonymous. One such alternative is the use of shielded transactions, which rely on shielded addresses.

Shielded transactions use a cryptographic technique called “mixing” to make the sender’s and receiver’s addresses anonymous. This is done by generating a new address specifically for the transaction and transferring funds from the original sender address to this newly created address. At the same time, equivalent funds are sent from another newly generated address back to the receiver’s original address. These two new addresses are created by a mixer service that is external to the blockchain and are only used once per transaction. As a result, it becomes impossible to trace the origin or destination of a specific transaction, ensuring anonymity for both senders and receivers. Since only these two unique addresses are used, it is impossible to determine their owners or the source and destination of their funds.

Zcash – The Leading Implementation of Shielded Transactions

Zcash is the first cryptocurrency to incorporate zero-knowledge proofs and the first proof-of-work coin that does not have a founders’ reward.

While Zcash transactions are recorded on a public blockchain, the sender, recipient, and transaction amount remain private. This is achieved through the use of a zero-knowledge proof construction known as zk-SNARK.

Advantages of Shielded Transactions

Shielded transactions improve fungibility in the blockchain by allowing users to send funds without revealing their transaction partners, the amounts sent, or even the transaction history. This is done by generating a new address for each transaction, which can only be spent using the recipient’s private key.

The reasoning behind this approach is twofold:

1.) In certain situations, such as international payments or purchases where one wants to hide their spending habits, it is beneficial not to link transactions on the blockchain.

2.) Because Zcash transactions do not provide full transparency, it is difficult for external observers to determine the total amount of money allocated to specific use cases, such as gambling sites.