[[alloc] init] released the Shielded Bitcoin proposal to achieve privacy transactions for Bitcoin

[[alloc] init] Researchers Clara Shikhelman, Misha Komarov, and Aleksei Moskvin proposed a privacy meta-protocol called Shielded Bitcoin, which can achieve strong privacy transactions on the Bitcoin base layer without the need for operators, soft forks, or any modifications to Bitcoin consensus. The protocol defines the transaction structure and indexing protocol, and utilizes the Bitcoin PIPEs mechanism to anchor the inflow and outflow of funds.

Shielded Bitcoin transactions are essentially a piece of data prefixed (e.g., "shbtc:") that is embedded in Bitcoin transactions through OP_RETURN, witness fields, or other data-carrying methods. The Bitcoin network does not validate or enforce rules on it; invalid transactions may be included on-chain and must be ignored and rejected by the Shielded Bitcoin indexer, which passively listens to the blockchain, when verification fails and balance status updates are not made. The indexer uses a nullifier set instead of deleting spent notes and relies on zero-knowledge proofs to ensure that each nullifier comes from valid note outputs, thereby providing the same double-spending protection as Bitcoin.

The protocol is designed to structurally mirror Bitcoin, with a corresponding note for each UTXO. The indexer parses transaction history and constructs the spent and unspent states. Using this protocol only requires one Bitcoin node and one Shielded Bitcoin indexer, without the need for service providers, coordinators, or any off-chain state to recover funds, and its privacy attributes can be comparable to Zcash's shielded pools.