[[alloc] Init] Releases Shielded Bitcoin Proposal For Private Bitcoin Transactions

Shielded Bitcoin is a proposal put forward by [[alloc] init] researchers Clara Shikhelman, Misha Komarov, and Aleksei Moskvin for a novel privacy metaprotocol on the Bitcoin base-layer to enable shielded Bitcoin transactions without requiring operators, soft forks or other changes to Bitcoin consensus. You can find the whitepaper here and blog announcement here. 

The protocol defines a transactional structure and indexing protocol for strong privacy-preserving transactions, while relying on Bitcoin PIPEs for pegging funds into and out of the system. More on the PIPEs mechanism at the end of the article. 

Its design is very much a mirror of Bitcoin’s; there is an equivalent to a UTXO (a note), transactions consume notes as inputs like a regular Bitcoin transaction, a witness proves that the inputs consumed are properly authorized, nodes (indexers in the case of a metaprotocol) parse the transaction history and build a current state of what coins are spent and unspent, etc. 

All of the details however are quite different. 

A Shielded Bitcoin transaction is just a blob of data with a prefix (something like “shbtc:”) included in a Bitcoin transaction using OP_RETURN, the witness field, or some other data carrying method. It has no meaning to Bitcoin, the Bitcoin network does nothing to verify it, or enforce any rules against it whatsoever. It is perfectly possible for invalid Shielded Bitcoin transactions to wind up on-chain, and it is the job of a Shielded Bitcoin Indexer, that passively watches the blockchain, (read: node) to ignore those transactions when they fail validation, and refuse to apply them to updating the state of network balances.