In Order to Make Bitcoin as Private as Zcash, Researchers

Three researchers from the crypto company [alloc] init published a 56-page paper titled “Shielded Bitcoin” on Thursday. Their promise is to hide the amount, sender, and recipient of a Bitcoin transaction without touching a single line of the protocol. The mechanism is directly inspired by Zcash, but one detail is still missing: no one yet explains how to bring real BTC into or out of the system.

In brief

• Shielded Bitcoin, published on September 24 by Clara Shikhelman, Mikhail Komarov and Aleksei Moskvin ([alloc] init), copies the encrypted architecture of Zcash without modifying the Bitcoin consensus.
• A private transaction would cost about 4 times more than a standard transaction.
• Zcash, the copied reference, currently hides 29% of its circulating supply, compared to 7.6% five years ago.

Bitcoin Transactions as Private as Zcash

The principle, let’s say, is simple. In the system imagined by [alloc] init, the value in bitcoin would be kept in encrypted “notes”. Spending one of these notes publishes a marker proving it was used, accompanied by a mathematical proof that its owner indeed held the funds. And at that time, the amount, sender, and recipient remain invisible.

Proposal by [alloc] to make Bitcoin private.

According to the plan, bitcoin would keep its role as a safe and clock but would give up verifying anything. That task would thus fall to separate software that anyone could run via a technique called PIPEs v2. In other words, a Bitcoin confirmation would no longer guarantee only that the private payment it contains is valid. Privacy has a cost because according to Mikhail Komarov, a private transfer would weigh about 700 vBytes compared to 100 to 200 for an ordinary transaction. Bitcoin would thus become discreet but not free.

Why Copy Zcash’s Privacy? 

If [alloc] init copies Zcash, it’s no accident because its protected pools now hold 4.9 million ZEC, about 29% of the issued supply. This is compared to 7.6% five years ago and 23.3% one year ago. At the current rate, that represents nearly $7.8 billion hidden. Last week, Zcash recorded about 63,000 shielded transactions, its best week since 2022, with a volume transferred exceeding $23 billion, the highest since 2021.

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A little historical nod for those who don’t know: Zcash’s roots go back to Zerocoin, a privacy extension proposed for Bitcoin in 2013. The project eventually became independent and became Zcash in 2016. And twelve years later, Bitcoin tries to recover what it let slip away. However, the little catch in the 56-page document is that it doesn’t explain how real BTC would enter or exit the system at withdrawal. These mechanisms are deferred to a future paper using PIPEs to lock a Bitcoin signature key.

BTC Enters a Unique Accumulation Phase 

This Bitcoin privacy plan comes as the market is stirring for other reasons. On X, analyst Ash Crypto shared a chart comparing the current BTC to the 2022 cycle. According to him, after a trend break, BTC entered an accumulation phase similar to that which preceded the post-2022 rebound, before a possible new bullish leg.

So the Bitcoin “privacy” narrative comes at a time when attention is already turning to a possible new cycle. And if Zcash has seen its price multiply by more than 23 in a year on this theme, it is hard to believe BTC is launching such research by pure calendar chance.

What to Take Away from the Bitcoin Privacy Proposal Inspired by Zcash? 

• Shielded Bitcoin, a proposal copying Zcash’s architecture to make Bitcoin transactions private without touching the consensus.
• The mechanism for depositing and withdrawing bitcoins remains to be defined, and transactions would cost more.
• Zcash already hides 29% of its supply ($7.8 billion) and has seen its price climb over 2,300% in one year.
• Market technical analysis reminds us that the privacy narrative arrives at a pivotal moment for BTC, which is in an accumulation phase.

Bitcoin promises discretion according to the Shielded Bitcoin proposal. So it remains to be seen if the protocol will keep its word before the next cycle is already closed. In your opinion, is this privacy good or bad for BTC?