Shielded Bitcoin: Private Transfers on Bitcoin Netwok Onchain L1

[Forsyth Jones]

A new privacy proposal on the Bitcoin network, a metaprotocol that would hide transaction amounts ​​and other transaction data such as addr, etc, without the need for any hard or soft forks, blockchain layers, side-channels, or trusted operators like federations as happens with Liquid network, etc.

The system works through encrypted notes published directly on the Bitcoin network along with zero-knowledge proofs that validate the veracity of the data.

From what I get it so far, the wallet software would be responsible for validating these encrypted notes of Shielded Bitcoin transactions.

The idea in one paragraph

Value inside the metaprotocol lives in **notes**: small encrypted records, each holding an amount and a way to reach its owner. Notes are never visible on Bitcoin in readable form. When someone initiates a transaction, they publish an encrypted transfer to Bitcoin, along with a zero-knowledge proof that the transfer is valid. Bitcoin just stores and orders these bytes. It doesn't understand them, and it doesn't need to. Separate software reads the transfers in Bitcoin's order, checks the proofs, and keeps the shared list of notes. Think of Bitcoin as a public bulletin board: Bitcoin publishes and orders the data, while anyone can independently apply the Shielded Bitcoin rules to determine the resulting state.

I'm curious to know other technical details such as: if there will be additional fees, if it will weigh more bytes in the transaction, fees, etc, not to mention the trade-offs.

According to the researchers involved, this is still in its early stages and more questions will be clarified as the proposal progresses.

Here are the links and the project paper:

Post on X: https://x.com/allocinitxyz/status/2103124026214568209

Full paper: https://www.allocinit.xyz/uploads/shielded-bitcoin.pdf

Explanatory article: https://allocinit.notion.site/Shielded-Bitcoin-Private-Transfers-on-Bitcoin-L1-3e436974087f80f586acf2462bc547a5

Another article from bitcoinmagazine: https://bitcoinmagazine.com/technical/alloc-init-releases-shielded-bitcoin-proposal-for-private-bitcoin-transactions

According to this tweet, there are about 04 teams actively working on zk-based privacy protocols for Bitcoin, I don't know if it's true: https://x.com/januszg_/status/2103127556031488254

[Clearnet]

So we're going from Pseudonymous to totally anonymous. This could lead a permanent ban or some countries , even though they  are now accepting. Crime , illegal business , trafficking will be increased. Same as bitcoins early era when it was newly found. Criminals accepted bitcoin more early than a normal people.

Silkroad incident is a proof for that. I am actually against it. Decentralization is okay , but it would be exploiting the decentralization system .

[Upgrade00]

The encryption is being enforced through a channel so this cannot be L1, this is a L2 proposal.

I do not think we have a privacy issue to necessitate shielding transactions. Pseudoanonymity already exists and can serve to protect bitcoin users who do not link their identity to their address. Adding an extra layer will further spotlight bitcoin for attacks from governments accusing it of being used for illegal purposes majorly.

If you want this level of anonymity, you can use monero.

[Ambatman]

If I'm not mistaken there would be a software to determine if a shielded bitcoin
Is valid according to shielded bitcoin protocol rules
So separate validators.
Centralization imo could arise or relying on the indexer.

So we're going from Pseudonymous to totally anonymous. This could lead a permanent ban or some countries ,

It still remains pseudonymous or not all transactions are anonymous
The blockchain still records it
Just that the data of shielded bitcoin is more private.
Not to mention it's not really a consensus rule.

even though they  are now accepting. Crime , illegal business , trafficking will be increased.

Strong financial privacy could be useful  to criminals likewise average users and businesses.

The encryption is being enforced through a channel so this cannot be L1, this is a L2 proposal.

It is L1 or better still how they described it as metaprotocol.
The shielded Bitcoins are published on the Bitcoin blockchain
There isn't a separate offchain transaction history.

[gmaxwell]

Looks like more shitcoin affinity fraud like counterparty and mastercoin to me.

"Metaprotocol"  means it is a shitcoin that uselessly embed its data in another system that does absolutely no validation of it... why? because it helps them defraud the public into thinking their shittoken has merit because of connection with a reputable system.  But really it's just a smokescreen, because the host doesn't validate the parasite's rules there isn't any value beyond the affinity fraud.

I'm going to punt this to the altcoin subforum unless someone can convince me that there is no seigniorage profit vector here and that its spamming of Bitcoin has some useful purpose beyond trying to convince suckers that some altcoin is really bitcoin related.

[Alvin_talk]

Lol.

Same old stories. Shielded note systems are not new at all. They have been around for a while now. We have a well known example such as zcash. And if we take account of the vulnerabilities that had been discovered in its so called shielded technology, I don't think it will be reasonable for bitcoin community to adopt this shit in any way. This is just like creating additional security risk and complexity to bitcoin IMO.

[d5000]

I'm going to punt this to the altcoin subforum unless someone can convince me that there is no seigniorage profit vector here

From what I read about the proposal, the state of the "shielded subsystem" could be always verified running an indexer which can confirm that a "shielded Bitcoin" traces back to a real Bitcoin. So in theory you could implemented it with some seigniorage, e.g. adding some dev tax, but that would be always visible to observers, and you would have no reason to run the variant of the software with seigniorage profits.

(PS: If I'm wrong, which is very possible as I'm not an expert, I would be interested in where you see the potential for such a profit "attack vector".)

I believe this could be an interesting alternative to CoinJoins, with completely different technology obviously.