[Education] Shielded Zcash Easily Explained | From the Water Jar to the Lake
An illustrated metaphor explaining what happens when someone shields Zcash, enabling its privacy features.
This is an illustrated metaphor explaining what happens when someone shields Zcash in the Orchard Pool, comparing it to one liter of water from a transparent jar being dropped into a big lake, enabling ZEC’s privacy features.
TL;DR
🛡️ Shielding Zcash is like:
→ You own 1L of water, everyone can see you carrying it around,
→ Drop the 1L into a 4 million liters lake, full fungibility,
→ Get a fully encrypted note that says you own 1L,
→ Only you hold the keys to decrypt this note.
When someone receives one Zcash (1.0 ZEC) in a transparent address, it’s like receiving one liter (1.0 L) of water in a transparent jar.
This is how most people will get their first units of Zcash, buying on centralized exchanges like Binance that only support t-addresses due to historical regulatory crackdowns on privacy.
Beware: Everyone can see you receiving the jar, from whom, and what’s in it!
Everyone can see this person walking around with the jar of water and know exactly what they have inside it. This is publicly known information, and most cryptocurrencies work like that.
Observers can also see this person is walking towards the lake, especially if they use the same road to the lake over and over again. As in using the same t-address repeatedly.
This leaks information and patterns that AI and chain analysis tools can leverage against the user in the future.
Shielding Zcash and Adding Privacy to the Equation
Shielding the Zcash is like dropping the one liter of water into a lake with around 4 million liters of water (currently) and seeing your water be fully mixed and indistinguishable from the lake’s water.
So, while observers can track the user to the lake, after that point there are no footprints (or fingerprints) left to follow. The 1.0 L (or 1.0 ZEC) is fungible and part of a large pool of water with different share owners who don’t know each other.
The lake is the Orchard Pool, and it’s a trustless setup, different from the previous two: Sprout and Sapling Pools.
By dropping the water into the lake (depositing Zcash in the shielded pool), the user receives a fully encrypted note saying they own one liter of water (1 ZEC) from this lake.
Only each owner holds the keys that can decrypt this note. Nobody can see the note’s content but the private key holder.
Now, with a Zcash wallet like Zashi, the user can walk around, and nobody will know how much water (ZEC) they own or even that they own any water, as the small note can be kept hidden in the pockets.
The user can spend the one liter (Zcash) or part of it using the note system. The person who received this payment can do the same, and so on...
If the user and their counter-parties never go back to the lake to redeem the owned water with a transparent jar (unshield Zcash), all transactions and balances will be unknown to observers.
Impossible to trace and view.
Zero-Knowledge Proofs (zk-SNARKs)
Proofs of ownership are generated with zk-SNARKs, a technology that generates zero-knowledge proofs, allowing users to prove what is in the note without having to reveal its content to the counter-parties.
A nullifier makes sure you can’t double-spend the same amount of water.
Zcash was the first open-source project to implement zero-knowledge proofs to cryptocurrencies, which are getting more common over time. Even Satoshi Nakamoto mentioned the technology in the Bitcoin Forum while considering an improvement to BTC, although deeming it hard.
“This is a very interesting topic. If a solution was found, a much better, easier, more convenient implementation of Bitcoin would be possible. (...) It’s hard to think of how to apply zero-knowledge-proofs in this case.” — Satoshi Nakamoto
In Zcash, zk-SNARKs enable private transactions by allowing users to prove ownership of a shielded note without revealing sensitive details like the amount or sender’s identity.
When spending a note, the user generates a compact proof that demonstrates they know the secret spending key, that the note’s value balances with the new outputs (preventing inflation), and that a unique “nullifier” (a cryptographic hash derived from the note) hasn’t been used before, thus blocking double-spends by ensuring it’s added to a public list of spent nullifiers on the blockchain—all verified by nodes without exposing any private info.
In this example, water, of course, has monetary value.
In the real world, water is so abundant that we ignore it.
Zcash has a capped supply of 21 million ZEC, similar to Bitcoin.
This can generate scarcity if there is demand, making Zcash’s monetary value not only easier to notice but also with increasing potential over time if the demand for this solution is growing.
I believe good privacy solutions have huge growing potential.
This was a simplified explanation of how Zcash works. Better understanding requires better sources and a willingness to discover new things, but I hope this content helped you to learn something new today in an easy way.