In a medium saucepan, bring 4 cups of water to a boil. Gradually whisk in the grits, reduce heat to low, and simmer for about 20 minutes, stirring frequently.
Once the grits are thick and creamy, stir in the butter, cheddar cheese, and season with salt and pepper. Keep warm on low heat.
In a large skillet over medium heat, cook the chopped bacon until crispy. Remove the bacon with a slotted spoon and set aside, leaving the drippings in the skillet.
Add the diced onion to the skillet and sauté for 3-4 minutes until softened. Add the minced garlic and cook for an additional minute.
Increase the heat to medium-high and add the shrimp to the skillet. Sprinkle with smoked paprika, cayenne pepper (if using), salt, and pepper. Cook for about 3-4 minutes until the shrimp turn pink and are cooked through.
Pour in the chicken broth, stirring to combine, and cook for another 1-2 minutes to heat through.
To serve, spoon the grits onto plates and top with the shrimp mixture. Garnish with crispy bacon and chopped parsley.