Alloc Init Proposes Shielded Bitcoin with External Verification

Researchers at Alloc Init have proposed Shielded Bitcoin, a design for private transfers on the Bitcoin base layer that doesn't require any soft fork or consensus change. The specification, authored by Clara Shikhelman, Mikhail Komarov, and Aleksei Moskvin, would hide the sender, recipient, and amount of a payment while Bitcoin records and orders the data without validating it.

Shielded Bitcoin holds value in encrypted notes, and each transfer carries a zero-knowledge proof that the sender controls the notes being spent and that inputs and outputs balance. A public marker called a nullifier lets software reject double spends without revealing which note was used.

The proposal treats Bitcoin as a 'neutral publication and ordering layer', with separate software called indexers verifying the proofs and rebuilding the shielded state. This is similar to Zcash, but unlike Zcash, which enforces rules through its own blockchain, Shielded Bitcoin relies on external verification.

Deposits and withdrawals are left for a separate paper built on Bitcoin PIPEs v2, earlier Alloc Init research that encrypts a Bitcoin signing key so it can be recovered only with a valid proof. The current design uses the Groth16 proof system, which has security resting on a trusted setup ceremony.

The proposal joins a wider effort to add Zcash-style privacy to Bitcoin, including Citrea's acquisition of privacy builder Crest. It lands amid a revival in interest in privacy coins, with Zcash's shielded pools holding about 4.9 million ZEC as of Friday, roughly 29 percent of issued coins and worth about $7.8 billion.