Alloc Init Proposes Shielded Bitcoin Transfer System Using Zero-Knowledge Proofs

Alloc Init has proposed a new private Bitcoin transfer system called Shielded Bitcoin. Researchers Clara Shikhelman, Mikhail Komarov, and Aleksei Moskvin published a paper on September 24 outlining how this system would work without requiring a soft fork to the Bitcoin protocol.

The key innovation behind Shielded Bitcoin is its use of zero-knowledge proofs (ZKPs) to verify transactions. This would allow senders, receivers, and amounts to remain hidden from public view, while still maintaining the integrity of the blockchain. The system also incorporates encrypted notes, nullifiers, and a separate mechanism for indexers to verify ZKPs.

Misha Komarov estimated that Shielded Bitcoin transfers could cost roughly four times more than ordinary Bitcoin transactions initially. However, critics have raised concerns about early anonymity and quantum resistance. Post-quantum researcher Pierre-Luc Dallaire-Demers noted that the construction is not quantum resistant at all, while Zerocash co-author Eli Ben-Sasson expressed support for the project's direction.

The researchers acknowledge that privacy would depend heavily on usage patterns and note that a large quantity of bitcoin entering the shielded system does not necessarily create a strong anonymity set. A forthcoming paper will address how users can move BTC into and out of the shielded system.