Shielded Bitcoin: A New Proposal for Private Payments on the Public Ledger

A new proposal for Bitcoin called Shielded Bitcoin aims to add a private payment system on top of the existing public ledger without changing its consensus rules. This would allow users to make private transactions while still keeping the public ledger's integrity intact.

The proposal uses a model similar to Zcash, where value is represented by encrypted notes and senders prove in zero-knowledge that they can spend those notes without revealing the recipient or amount. However, unlike Bitcoin, Shielded Bitcoin would not be responsible for verifying private payments, which raises questions about its privacy benefits and potential risks.

According to the paper, the intended privacy target is broad: sender, recipient, amount, and internal routes from spent notes to newly created ones would be encrypted. However, outside observers could still verify that a valid private transfer occurred without learning who paid whom or how much.