Shielded transactions are transactions that are done by shielded addresses. This type of address uses zero-knowledge proofs to encrypt the transaction data to prevent them from being tracked, but still, make them verifiable to the network nodes.
When a shielded transaction occurs, the information linked to it is shielded. For example, the transaction amount, the addresses, memos, and so on are shielded from the eyes of the public.
People use shielded addresses to send their cryptocurrencies to prevent the public from knowing about them.
Usually, the sender can decide whether to add an encrypted memo to the transaction or not. Recipients have no idea of the identity of the sender, as there is no receipt for the transaction. The only time that the recipient knows the identity of the sender is if they tell them by themselves or they send an encrypted memo with the transaction. If the sender sends an encrypted memo, they can disclose their identity and the purpose of the transaction.
Shielded crypto transactions are common in ZCash. ZCash is seen as an anonymous way to send funds. This crypto comes with two types of addresses, the transparent address and the shielded address.
The transparent address can be likened to the address seen in regular cryptocurrencies, while the shielded ones hide the transaction details. When people send cryptocurrencies using the transparent address, the details of their transactions can be found on the blockchain, available to the public.
Shielded transaction improves privacy of the transaction data. The transaction is unshielded when a transparent address is sent to a transparent address. If a transparent address sends to a shielded address, it leads to a shielded transaction. If a shielded address is sent to a transparent address, it is an unshielded transaction.