Bitcoin Gets Shielded: Researchers Propose Private Transaction Protocol

Researchers from Alloc Init have proposed Shielded Bitcoin, a metaprotocol that hides BTC transfer amounts and counterparties without altering Bitcoin's consensus rules or relying on trusted bridge operators.

The design draws inspiration from Zcash's encrypted-note approach but builds it directly on Bitcoin's existing base layer using cryptographic proofs instead of a trusted intermediary to move value privately.

Shielded Bitcoin places value into encrypted 'notes' with each note containing an amount and the owner's receiving information. When Alice pays Bob, her wallet publishes encrypted notes to Bitcoin alongside a zero-knowledge proof that confirms the notes being spent exist and that Alice is authorized to spend them without exposing details publicly.

Software called indexers would then read these transfers, verify the proofs, and track nullifiers, which are unique serial numbers that prevent the same note from being spent twice. Anyone can run indexers, meaning no single party can control the ledger.