Shielded Transaction
What Is a Shielded Transaction?
A shielded transaction is a type of cryptocurrency transfer designed to protect user privacy and anonymity. Unlike transparent transactions on public blockchains like Bitcoin and Ethereum, where wallet addresses and transaction values are visible to anyone, shielded transactions use cryptography to keep that data private.
While the transaction is still recorded on the blockchain to prevent double-spending, the specific metadata concerning who sent it, who received it, and how much was sent remains encrypted.
How Does a Shielded Transaction Work?
Shielded transactions rely on Zero-Knowledge Proofs. This technology allows a user to prove to the network that a transaction is valid—meaning they possess the funds and haven’t spent them yet—without revealing the actual details of the transaction. Specifically, the network validates zk-SNARKs, confirming that the transaction is legitimate while keeping the data hidden from public explorers.
In the Zcash ecosystem, for example, there are two distinct address types: transparent addresses, which function like common public addresses, and shielded addresses, which are private.
A transaction is “shielded” whenever the recipient is a shielded address. It’s important to note, however, that a transaction with a transparent address recipient is unshielded, even if initiated by a shielded address.
Benefits and Use Cases
Financial Privacy
Just as bank statements are not public records, many users believe crypto history should be private. Thus, shielded transactions can protect users from surveillance.
Safety
By masking holdings, shielded transactions reduce the risk of users becoming targets for criminals who can identify wallet accounts holding valuable assets on-chain.
Business Confidentiality
Businesses can pay employees or suppliers using crypto without revealing their payroll or pricing strategies to competitors.
Risks and Challenges
Regulatory Scrutiny
Due to their opacity, shielded transactions face scrutiny from regulators concerned about illicit financing. To bridge the gap with regulators, some protocols offer “viewing keys,” allowing users to grant auditors or tax authorities read-only access to transaction details without sharing spending power.
Transaction Complexity
Generating privacy proofs is computationally intensive, making these transactions heavier and sometimes more expensive than transparent ones.
Accessing Shielded Transactions with Ledger
Ledger supports privacy coins like Zcash (ZEC). With the latest updates, users with compatible devices can now perform deshielding transactions—sending funds from shielded inputs to transparent addresses—directly within Ledger Wallet.
However, due to hardware memory limitations, this feature is not available on the Ledger Nano S. Additionally, for fully shielded workflows (sending to a shielded address), you may still need to connect your Ledger signer to a compatible third-party wallet.
