Shielded Bitcoin Aims to Bring Zcash-Style Privacy to Mainstream
A new proposal called Shielded Bitcoin aims to bring Zcash-style private transfers to BTC. Researchers from [[alloc] init] published a paper on September 24, outlining how this can be achieved without requiring any changes to Bitcoin's consensus rules.
The design reuses techniques pioneered by Zcash, such as encrypted notes, public nullifiers, and zero-knowledge proofs. However, it does not launch a separate blockchain like Zcash does. Instead, Bitcoin serves as the layer that publishes and orders data, while participants rebuild private transaction state from what gets recorded there.
The proposed transfer process involves holding BTC-denominated value as encrypted notes. To send funds, users would publish an envelope with three parts: encrypted outputs, public nullifiers marking old notes as spent, and a zero-knowledge proof proving ownership of the funds and that value was conserved.
While this design leaves Bitcoin's consensus rules intact, it raises questions about how ordinary BTC moves into or out of the shielded system. The researchers have not yet published a detailed construction for peg-in and peg-out mechanisms, which are essential for making Shielded Bitcoin usable.