Bitcoin's Secret Keeper: Researchers Propose Shielded Transactions

Researchers from New York lab [[alloc] init] are proposing a new way to bring privacy to Bitcoin without changing its base rules. They call it Shielded Bitcoin, and it uses encrypted notes and zero-knowledge (ZK) proofs to conceal the amounts and counterparties of transactions.

The system works by creating a metaprotocol whose rules are interpreted by independent software rather than Bitcoin consensus. Programs called indexers scan Bitcoin for Shielded Bitcoin data, verify its cryptographic proofs, and reconstruct the private system's history.

According to Clara Shikhelman, Mikhail Komarov, and Aleksei Moskvin, authors of the white paper 'Shielded Bitcoin: Private Transfers on the Bitcoin L1,' their system would allow users to make private payments without leaking information. They estimate that a shielded payload is about 700 vbytes, compared to roughly 100-200 for a typical Bitcoin payment.

However, the biggest problem with Shielded Bitcoin is getting bitcoin in and back out of the system. The lab has left this to a companion white paper based on their Bitcoin PIPEs v2 research and witness encryption. Witness encryption is still experimental, and its ciphertexts have been reduced from roughly 300 terabytes to about 8 terabytes in just one year.

The Zcash community has weighed in on the proposal, with some praising it as a great step forward for privacy on Bitcoin. However, others argue that the design isn't yet a competition for the Zcash chain and that financial privacy isn't zero-sum.