Researchers Publish 'Zcash-Style' Design for Private Bitcoin Transfers

Researchers at Bitcoin cryptography firm alloc init released a 56-page specification for Shielded Bitcoin, a protocol that aims to provide Zcash-style privacy for transfers on Bitcoin's base layer without altering Bitcoin's consensus rules. The design represents value as encrypted "notes" and requires each transfer to include a zero-knowledge proof that the spender controls the notes and that inputs and outputs balance. A public nullifier mechanism allows software to prevent double-spends while avoiding disclosure of which specific note was consumed.

Unlike Zcash, which enforces note rules on its own blockchain, Shielded Bitcoin proposes publishing transfer data directly on Bitcoin and relying on separate verifier software, called indexers, to check proofs and rebuild the shielded state. The authors note that certain metadata — including timing, fees and the count of inputs and outputs — remains visible on-chain, and they emphasize that the protocol protects who paid whom and how much, not the existence of a shielded transfer.

The specification covers only transfers inside the shielded system; procedures for moving BTC into and out of that system are deferred to a follow-up paper built on alloc init's earlier Bitcoin PIPEs v2 research, which focuses on encrypting signing keys so they can be recovered only with valid proofs. The current Shielded Bitcoin draft uses the Groth16 proof system, which depends on a trusted setup ceremony, and encodes each transfer in an OP_RETURN output. For a transfer with two inputs and two outputs, the paper reports a size of 625 virtual bytes.

The design's reliance on larger OP_RETURN defaults in Bitcoin Core v30 means relay of Shielded Bitcoin transactions would depend on enough nodes and miners continuing to accept that policy; the authors acknowledge that node operators can reverse such defaults. An appendix outlines an optional compliance layer in which a "Trust Authority" could certify approved deposits so institutions can verify a note's provenance without exposing the transfer graph; notes lacking that certification would still be valid under the protocol. The paper's release follows broader market developments for Zcash-based products: regulated funds and exchange-traded products for ZEC began trading in the U.S. and Europe in August and September 2026, and ZEC was trading at $1,592 on September 25, according to CoinGecko.