Researchers propose ZK-proof privacy for Bitcoin without soft forks

The proposal, dubbed Shielded Bitcoin, borrows heavily from Zcash architecture, utilizing encrypted notes, nullifiers, and zero-knowledge proofs to hide sender identities, receiver addresses, and transaction amounts. Unlike traditional privacy upgrades that require soft forks, this model shifts verification duties to external programs known as indexers. These indexers parse the Bitcoin blockchain to confirm proof validity and track the state of the private pool, effectively operating outside of Bitcoin's primary consensus rules.

While the project offers a path to privacy, significant hurdles remain. Misha Komarov, a key researcher on the team, estimates that shielded transactions will initially cost roughly four times more in miner fees than standard transfers due to the increased data payload. Furthermore, the system is not yet fully functional; while internal transfers are outlined in the September 24 paper, the mechanisms for depositing and withdrawing bitcoin—a process the team calls PIPEs—are still under development. Critics have also noted that the system faces challenges regarding anonymity sets, as a small initial user base may expose patterns, and the current construction lacks quantum resistance. The team plans to present these findings at the Bitcoin Treasuries Conference in New York on September 28.