Bitcoin Researchers Propose Shielded Bitcoin to Deliver Private Transfers

Bitcoin researchers have proposed a system for private transfers directly on the network without requiring a soft fork or changes to its consensus rules. The proposal, called Shielded Bitcoin, adapts techniques pioneered by Zcash and introduces encrypted notes, public nullifiers, and zero-knowledge proofs.

The design allows users to hold BTC-denominated value as encrypted notes and transfer funds while keeping the amount being transferred and the identities of the counterparties hidden. Miners and nodes would not validate the shielded state themselves, instead, implementations following the Shielded Bitcoin rules would scan BTC blocks and replay accepted transfer envelopes.

The current implementation profile uses OP_RETURN to publish the encrypted transfer data, though the researchers leave open the possibility of other publication methods. The system would provide timestamped transaction history and ordering needed to reconstruct the system, while the metaprotocol would handle encrypted balances and transfer verification.