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Shielded Transactions
- Blockchain transactions are public records and can raise privacy concerns. Introducing shielded transactions – a solution to making transactions untraceable, thus addressing these privacy concerns.
- Shielded transactions require the creation of zero-knowledge proofs (zkSNARKs) to validate transactions which encrypt the sender's and receiver's addresses, making them private.
- Zcash, a privacy-focused cryptocurrency, pioneered the use of zero-knowledge tech in the cryptocurrency system. Shielded addresses and transactions using viewing keys and spending keys ensure transaction privacy.
- Shielded pools are protocols for depositing tokens to protect various assets. There are Single-asset shielded pools and Multiple-asset shielded pools. These pools make use of zero-knowledge proofs and encrypted notes.
- Shielded pools are hidden from outside observers until tokens are removed from the pool. The more tokens deposited in a shielded pool, the more hidden the transactions are.
- While shielded transactions, addresses, and pools drive the mission of true privacy in blockchain technology, it has its downsides. It can be used by bad actors to perform illegal transactions that remain untraceable.
- Some blockchains can mandate protocols with shielded pools to perform KYC for users to prevent illegal actors from using the pool.
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