Shielded Bitcoin: A New Proposal for Private Transfers on the Base Protocol

Researchers at Alloc Init have proposed a system to bring private transfers to Bitcoin without requiring a soft fork. Their proposal, called Shielded Bitcoin, would conceal transaction amounts, senders, receivers, and links to previously spent funds using encrypted notes and zero-knowledge proofs.

The design draws from Zcash's architecture, which also uses encrypted notes, public nullifiers that mark notes as spent, and zero-knowledge proofs. Unlike Zcash, Shielded Bitcoin would not operate its own blockchain or consensus mechanism.

A companion post by the researchers acknowledged a limitation of their proposal: large deposits do not automatically create a large anonymity set. They said observers may still be able to narrow down relationships between transfers if a small number of actors create most notes or wallets exhibit distinctive behavior.