Shielded Bitcoin Draft Aims to Add Zcash-Style Privacy Without Changing Rules

Researchers at [alloc] init have proposed a new approach to adding privacy features to Bitcoin without altering its underlying rules. The draft, titled 'Shielded Bitcoin: Private Transfers on the Bitcoin L1', was published on September 24, 2026.

The proposal, written by Clara Shikhelman, Mikhail Komarov, and Aleksei Moskvin, uses a combination of encrypted notes, public nullifiers, and zero-knowledge proofs to hide transaction details such as sender, recipient, transfer amount, and links to earlier payments. This would be achieved through a separate software called indexers that verifies the privacy logic by scanning Bitcoin blocks.

The system relies on Groth16 as its proof system, which requires a trusted setup ceremony. The draft also addresses the issue of fee impact, stating that a shielded transfer would require 625 virtual bytes for a transaction with two inputs and two outputs.

However, critics have pointed out several concerns, including the need for a 'trusted setup' and the lack of in-protocol mechanisms for depositing and withdrawing actual BTC. Mert Mumtaz, cofounder of Helius and a Zcash proponent, described the proposal as 'a synthetic ledger with significant tradeoffs.'