Bitcoin Privacy Layer

A privacy-preserving smart contract implementation for Bitcoin transactions using zero-knowledge proofs and Merkle trees. This contract enables confidential transactions while maintaining the security and verifiability of the Bitcoin network.

Overview

This smart contract implements a privacy layer that allows users to make anonymous transactions using a commitment-nullifier scheme backed by zero-knowledge proofs. It follows the SIP-010 fungible token standard and implements a Merkle tree-based verification system.

Features

• Zero-Knowledge Privacy: Enables private transactions using commitment-nullifier pairs
• Merkle Tree Verification: Implements a 20-level Merkle tree for efficient proof verification
• SIP-010 Compatibility: Works with any token implementing the SIP-010 fungible token standard
• Double-Spend Prevention: Uses nullifier tracking to prevent double-spending
• Deposit/Withdrawal System: Secure system for depositing and withdrawing funds

Technical Specifications

• Merkle Tree Height: 20 levels
• Maximum Deposits: 2^20 (1,048,576) unique deposits
• Proof Size: 20 elements per proof
• Hash Function: SHA-256

Core Functions

Deposit

(deposit (commitment (buff 32)) (amount uint) (token <ft-trait>))

Allows users to deposit tokens into the privacy pool:

• Creates a commitment
• Updates the Merkle tree
• Transfers tokens to the contract
• Returns the leaf index of the deposit

Withdraw

(withdraw (nullifier (buff 32)) (root (buff 32)) (proof (list 20 (buff 32)))
         (recipient principal) (token <ft-trait>) (amount uint))

Enables private withdrawals from the pool:

• Verifies the zero-knowledge proof
• Checks nullifier uniqueness
• Transfers tokens to the recipient
• Marks the nullifier as used

Error Codes

Code	Description
1001	Not authorized
1002	Invalid amount
1003	Insufficient balance
1004	Invalid commitment
1005	Nullifier already exists
1006	Invalid proof
1007	Tree full

Read-Only Functions

• get-current-root: Returns the current Merkle tree root
• is-nullifier-used: Checks if a nullifier has been previously used
• get-deposit-info: Retrieves information about a specific deposit

Security Considerations

1. Zero-Value Checks: The contract enforces non-zero commitments and amounts
2. Tree Capacity: Implements checks to prevent overflow of the Merkle tree
3. Nullifier Tracking: Maintains a registry of used nullifiers to prevent double-spending
4. Proof Verification: Requires valid zero-knowledge proofs for withdrawals

Dependencies

• SIP-010 Fungible Token Trait
• SHA-256 hash function support
• Contract-call functionality

Usage Example

1. Making a Deposit:

(contract-call? .privacy-layer deposit
    0x1234...  ;; commitment
    u100       ;; amount
    .token-contract)  ;; SIP-010 token contract

2. Performing a Withdrawal:

(contract-call? .privacy-layer withdraw
    0x5678...  ;; nullifier
    0xabcd...  ;; current root
    (list ...)  ;; merkle proof
    tx-sender   ;; recipient
    .token-contract  ;; token contract
    u100)      ;; amount

License

This project is licensed under the MIT License. See the LICENSE file for details.

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Note: This implementation assumes the availability of a zero-knowledge proof system and proper integration with the Bitcoin network. Additional documentation regarding the proof system and network integration will be provided separately.