Shielded Bitcoin: Private Transfers Without Soft Forks

Developers have proposed a mechanism for private Bitcoin transactions called Shielded Bitcoin. This solution enables users to make secure transfers on Bitcoin's first layer without requiring a soft fork, operators, or bridges.

The system relies on 'notes', records containing the amount and recipient data. When sending funds, users include encrypted notes, nullifiers, and compact zero-knowledge proofs in regular transactions. The proof verifies that the coins being spent exist, the sender has the right to spend them, and the balance of incoming and outgoing amounts without revealing links between participants.

Indexers verify these proofs by tracking blockchain publications, validating them, and marking used nullifiers to prevent double-spending. According to the authors, indexers do not gain control over funds; any participant can independently verify transfer history.