Bitcoin privacy proposal borrows Zcash model without touching consensus
Researchers at Alloc Init propose Shielded Bitcoin, which would use zero-knowledge proofs and encrypted notes to hide transfer details, but faces questions about anonymity and quantum resistance.
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A new proposal from crypto research firm Alloc Init seeks to bring Zcash-style privacy to Bitcoin without altering the base protocol's rules. Called Shielded Bitcoin, the system would hide transaction amounts, sender and recipient identities, and links to previously spent funds by combining encrypted notes with zero-knowledge proofs, according to a paper published Thursday by Clara Shikhelman, Mikhail Komarov and Aleksei Moskvin.
The scheme does not require a soft fork, the researchers said. Instead of relying on miners to enforce privacy rules, it would use Bitcoin simply as "a neutral publication and ordering layer," with separate indexer software handling verification of zero-knowledge proofs, double-spend checks, and reconstruction of the shielded system's state.
Shielded Bitcoin's design closely follows Zcash's architecture, using encrypted notes, public nullifiers that flag spent notes, and zero-knowledge proofs to validate transactions, the researchers wrote. Unlike Zcash, however, it would not run its own blockchain or consensus mechanism.
Not everyone is convinced the approach delivers on its promise. Developer Vadim Zavodil criticized the proposal on X, arguing that most of its privacy infrastructure already exists in Zcash, and raised doubts about how much anonymity a new rollout could offer. "Privacy is a function of the crowd. Zcash has a real shielded pool built over years," he wrote. "A brand new metaprotocol starts at zero, so your first private transfer hides in a crowd of one."
The Shielded Bitcoin authors acknowledged a version of this concern in a companion post, noting that large deposits alone do not create a meaningful anonymity set, and that observers could still link transactions if a small number of actors generate most notes or wallets display recognizable behavior patterns.
Pierre-Luc Dallaire-Demers, founder of post-quantum crypto firm Pauli Group, pointed to another potential weakness, calling the design interesting but "not quantum resistant at all." He added that he was already investigating what a fully post-quantum version might look like, assuming Bitcoin eventually adopts post-quantum signatures.
Eli Ben-Sasson, a Zerocash co-author and CEO of StarkWare, welcomed the initiative's direction. Responding to Alloc Init's announcement, Ben-Sasson recalled that the original Zerocash paper—which preceded Zcash—was conceived with Bitcoin privacy in mind. He said he had not read the Shielded Bitcoin paper yet but would like to see zero-knowledge-powered privacy and scalability reach Bitcoin's base layer.
The proposal arrives as concerns over blockchain transparency persist, with regulators and analytics firms widely tracking Bitcoin movements. Whether Shielded Bitcoin can overcome its early anonymity hurdles and quantum exposure remains to be tested, but its consensus-free design could offer a lower-friction path to adoption if those issues are resolved.
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