Alloc Init Proposes Zcash-Style Private Bitcoin Transfers Without Soft Fork

Researchers from Alloc Init have proposed an innovative approach to bring Zcash-style private Bitcoin transfers without requiring a soft fork of the base protocol. The proposal, titled Shielded Bitcoin, aims to hide transaction amounts, senders, receivers, and linkages to previously spent funds by relying on encrypted 'notes' and zero-knowledge proofs.

According to the researchers, the system would use Bitcoin as an ordering layer while separate software handles verification and state reconstruction for the privacy system. This approach mirrors core Zcash components, including encrypted notes, nullifiers to prevent double-spending, and zero-knowledge proofs for transaction validity.

However, critics argue that early deposits may provide limited crowd-mixing, which could compromise anonymity. Developer Vadim Zavodil pointed out that a brand new metaprotocol starts at zero, so the first private transfer would hide in a crowd of one. The researchers acknowledged this concern and warned that observers might still be able to infer relationships between transfers if a small number of actors create most notes or if wallets produce distinctive behavior.

The proposal has also raised questions about cryptographic robustness and the practicality of the scheme. Pierre-Luc Dallaire-Demers, founder of post-quantum cryptography firm Pauli Group, said that the construction was 'not quantum resistant at all.' Despite these concerns, supporters emphasize the broader goal of bringing privacy to Bitcoin.

Eli Ben-Sasson, a Zerocash co-author and CEO of StarkWare, responded positively to the announcement, stating that he would like to see the vision of privacy and scalability through zero-knowledge proofs materialize on Bitcoin's base layer. The proposal is being evaluated not only on its technical feasibility but also on longer-term assumptions, particularly around anonymity set formation and the resilience of the cryptography to future threats.