Researchers propose 'Shielded Bitcoin' for private payments without changing Bitcoin's rules

A paper outlines private bitcoin payments that leave the network's rules alone

Researchers at the cryptography firm [alloc] init have published a paper describing a system called Shielded Bitcoin. The idea is to let people send bitcoin-denominated value while hiding the amount, the sender and the recipient, without changing the rules of the Bitcoin network itself.

The authors are Clara Shikhelman, Mikhail Komarov and Aleksei Moskvin. The design borrows the encrypted payment approach used by Zcash, a cryptocurrency built around privacy. CoinDesk reports that the paper was published on Thursday.

The work is at an early stage. There is no launch date, and the paper does not yet have a finished way to lock up real bitcoin and release it again, which is the step that would connect the private system to actual coins.

What the proposal would do

• Bitcoin-denominated value would be kept in encrypted records the paper calls notes.
• Spending a note would publish a marker showing the note had been used, along with a mathematical proof that the spender owns the funds and did not create new ones. The amount, sender and recipient would stay hidden.
• The transfer data would be stored on Bitcoin, but the checks would be left to separate software that anyone could run.

Bitcoin would store the data while other software does the checking

Zcash's blockchain verifies these proofs itself. Shielded Bitcoin would work differently: it would publish the payment data on Bitcoin and rely on outside software to check it.

Because of that split, a Bitcoin transaction could be confirmed even if the private payment recorded inside it failed Shielded Bitcoin's own checks, according to the report.

Zcash shielded activity in numbers

Zcash lets users pick between transparent payments, where addresses and amounts are public, and shielded payments that encrypt those details. ZEC is Zcash's coin.

CoinDesk reported that Zcash's shielded pools held about 4.9 million ZEC on Friday, up 14% from July 30, based on CoinDesk calculations using ZecStats data. That is roughly 29% of issued coins, worth about $7.8 billion following a rally.

The network recorded about 63,000 shielded transactions last week, its busiest week for private transfers since 2022 and its fourth-highest on record, the report said.

Ethereum is also reviewing a private pool plan

Ethereum is reviewing a proposal for a shared private pool that would let people transfer ether, Ethereum's native token, and other tokens without publicly revealing payment details. The proposal's authors cite payroll, treasury management and donations among the uses that fully public transactions serve poorly.

Payroll and business payments are driving the interest

Privacy has become a practical concern in recent months as developers try to make cryptocurrencies useful for payroll, business payments and everyday spending, according to the report.

Ordinary bitcoin transactions permanently expose amounts and addresses. Once an address is linked to a company or a person, other payments tied to it become easier to follow.

What is confirmed

The Shielded Bitcoin paper was published on Thursday by Clara Shikhelman, Mikhail Komarov and Aleksei Moskvin of [alloc] init, and it uses an encrypted payment design similar to Zcash's. The report states that there is no launch date and no finished mechanism for depositing and withdrawing bitcoin.

What is still unclear

Because Bitcoin would only store the shielded payment data, a confirmed Bitcoin transaction would not by itself prove that the private payment inside it was valid. The report also notes criticism about visible fees, higher transaction costs and reliance on a trusted cryptographic setup, and does not say whether those concerns have been resolved.

Sources

• CoinDesk