Developers Propose Mechanism for Private Bitcoin Transactions

Shielded Bitcoin enables private transfers on Bitcoin's first layer.

The Delving Bitcoin forum has published a description of Shielded Bitcoin, a metaprotocol for private transfers on Bitcoin’s first layer. The solution does not require a soft fork, operators, or bridges.

The system relies on notes—records containing the amount and recipient data. During a transfer, the user includes encrypted notes, a nullifier, and a compact zero-knowledge proof in a regular transaction.

This proof must confirm the existence of the coins being spent, the right to spend them, and the balance of incoming and outgoing amounts—without publicly revealing links between participants.

Indexers verify the proofs: they track blockchain publications, validate them, and mark used nullifiers to prevent double-spending. According to the authors, indexers do not gain control over the funds. Any participant can independently verify the transfer history.

Control within the scheme remains with the holder of the spending key. Two additional read-only keys allow users to view incoming transfers and their own outgoing transaction history without the ability to spend funds.