Developers introduced Shielded Bitcoin, a metaprotocol designed for private transactions on the Bitcoin layer-one network. The proposed mechanism functions without requiring soft forks, bridges, or third-party operators.
The system utilizes notes containing recipient data and transaction amounts. Users include encrypted notes, nullifiers, and zero-knowledge proofs within standard transactions. These proofs verify coin ownership and balance integrity without revealing participant identities.
Indexers validate these transactions and track nullifiers to prevent double-spending, though they do not gain control over user funds. Users maintain control via a spending key, while two additional read-only keys allow for monitoring incoming and outgoing transaction history.
The protocol hides transaction amounts, sender and recipient identities, and specific notes spent. However, observers can still see the transaction timestamp, fees, the number of notes involved, and the underlying Bitcoin transaction data.
The authors identified several limitations, including the visibility of transaction inputs and outputs, the requirement for a trusted setup for Groth16, and a larger on-chain footprint compared to standard Bitcoin operations.
