Bitcoin could soon get Zcash-style 'shielded' privacy without changing its rules

A group of researchers floated a way to make bitcoin payments more private without changing the network’s rules, as privacy-focused cryptocurrencies led by Zcash attract renewed investor interest.

The Shielded Bitcoin paper, published on Thursday by Clara Shikhelman, Mikhail Komarov and Aleksei Moskvin of cryptography firm [alloc] init, borrows the encrypted payment design used by Zcash.

Inside the proposed system, bitcoin-denominated value would be held in encrypted records called notes. Spending one would publish a marker showing it had been used, along with a mathematical proof that the sender owned the funds and had not created new ones. The amount, sender and recipient would remain hidden.

Zcash’s blockchain checks those proofs itself. Shielded Bitcoin would publish the transfer data on Bitcoin and leave the checks to separate software that anyone could run. A Bitcoin transaction could therefore be confirmed while the private payment recorded inside it failed Shielded Bitcoin’s checks.

Privacy has become a practical concern in recent months as developers try to make cryptocurrencies useful for payroll, business payments and everyday spending. Ordinary bitcoin transactions permanently expose amounts and addresses, but once an address is linked to a company or person, other payments associated with it become easier to follow.

Ethereum is also reviewing a proposal for a shared private pool that would let people transfer ether and other tokens without publicly revealing payment details. Its authors cite payroll, treasury management and donations among the uses poorly served by fully public transactions.

Zcash lets users choose between transparent payments, whose addresses and amounts are public, and shielded payments that encrypt those details. Its shielded pools held about 4.9 million ZEC on Friday, up 14% from July 30, according to CoinDesk calculations using ZecStats data. That represents roughly 29% of issued coins, worth about $7.8 billion following the rally.

Zcash recorded roughly 63,000 shielded transactions last week, its busiest week for private transfers since 2022 and fourth-highest on record. Across the network, reported transfer volume exceeded $23 billion, the largest weekly total since 2021 and second-highest in its history.

Zcash has attracted both investor money and attention amid those metrics. By early September, ZEC had gained more than 2,300% over the preceding year and crossed $1,000. It extended the rally above $1,600 on Wednesday.