Bitcoin Researchers Propose Private Transactions Without Changing Consensus Rules

Researchers have proposed a system called Shielded Bitcoin, which would allow for private transactions on the Bitcoin network without requiring changes to its consensus rules.

The design builds upon techniques used by Zcash and uses encrypted notes, public nullifiers, and zero-knowledge proofs to conceal transaction amounts, senders, recipients, and links between transfers.

The proposal avoids waiting for a Bitcoin upgrade and moves the privacy logic above the network's consensus rules. Users would hold BTC-denominated value as encrypted notes and transfer funds by publishing an envelope containing encrypted outputs and public nullifiers.

Bitcoin miners and nodes would not validate the shielded state themselves, but implementations following the Shielded Bitcoin rules would scan BTC blocks and replay accepted transfer envelopes to produce a common note tree and spent-note set.