The [alloc] init company released the specification for Shielded Bitcoin on September 24. The protocol aims to bring Zcash-style privacy to the Bitcoin network without requiring a soft fork. It utilizes zero-knowledge proofs to hide transaction details, though a functional implementation does not yet exist.
The system relies on witness encryption and the PIPEs v2 scheme, which was introduced in February, to manage fund deposits and withdrawals. Developers are still refining the cryptographic foundation, as previous versions of the encryption scheme contained vulnerabilities that were identified during internal and public testing.
Security experts, including BitVM creator Robin Linus, have noted that the underlying cryptography remains experimental. The authors plan to release an updated version of their research by the end of the year. The protocol also faces challenges regarding metadata leakage, as transaction timing and fees remain visible on the blockchain.
Researchers point out that even with shielded pools, privacy is not guaranteed at the entry and exit points. Analysis of Zcash has shown that matching transaction amounts can deanonymize users. Consequently, developers suggest that users must carefully manage their own operational security to avoid linking their addresses.
