Bitcoin Shielded Payment Design Published: How Will BTC Enter and Exit the System?

The Shielded Bitcoin design, which aims to conceal Bitcoin payments, does not yet explain how BTC will enter or exit the system.

Researchers at cryptography firm [alloc] init have published the Shielded Bitcoin design, which aims to enable private payments without changing the rules of the Bitcoin network. Inspired by Zcash’s privacy model, the proposal keeps transfer records on Bitcoin while leaving payment verification to separate software.

Under the design, value denominated in Bitcoin (BTC) will be held in encrypted records called “notes.” When funds are spent, a record will be published proving ownership of the funds and that no new BTC has been created; the amount, sender, and recipient will remain private.

The design aims to increase privacy

Although private payment data will be recorded on Bitcoin, the Bitcoin network will not verify it. As a result, when a Bitcoin transaction is confirmed, the private payment record it contains may not undergo verification by the separate software.

The paper’s 56-page technical document does not explain how regular BTC will be deposited into the system or withdrawn later. The researchers leave this mechanism for a separate study.

Researcher Mikhail Komarov estimated that a private transfer would take up about 700 virtual bytes. Since ordinary Bitcoin transactions range from 100 to 200 virtual bytes, he said private transfers could increase the fee paid to miners by about four times at an equivalent fee rate.

The proposal also requires a trusted setup process. The design’s security depends on at least one participant acting honestly. There is no launch date for the system yet.