Pat the shrimp completely dry with paper towels. Place in a medium bowl, sprinkle with Cajun seasoning, and toss until evenly coated. Refrigerate until ready to cook.
Chop the bacon into small pieces about 1/2 inch wide. Dice the onion and green bell pepper into small, uniform pieces, and mince the garlic.
Shred the cheddar from a block using a box grater. Slice the scallions and measure out the milk, butter, flour, and smoked paprika so everything is within reach.
Add the water, 2 cups of the chicken broth, and 1 teaspoon of kosher salt to a heavy-bottomed saucepan. Bring it to a gentle boil over medium-high heat.
Slowly pour the grits into the liquid in a thin, steady stream while whisking constantly. Keep whisking for about 1 minute, until the grits begin to thicken slightly.
Reduce the heat to low, cover the pot partially, and let the grits simmer gently for 35 to 45 minutes, stirring every 5 to 8 minutes and scraping the bottom of the pot so nothing sticks.
If the grits start to look too thick before they are tender, whisk in a splash of hot water or extra broth. The grits are ready when they are thick, creamy, and tender with no gritty bite.
Place a 12-inch cast iron skillet over medium heat and add the chopped bacon. Cook for 6 to 8 minutes, stirring often, until the bacon is crisp and golden and the fat has rendered.
Use a slotted spoon to move the bacon to a paper towel-lined plate. Pour off all but about 2 tablespoons of the bacon drippings, leaving the rest in the skillet.
Turn the heat up to medium-high and let the drippings get hot and shimmery. Add the seasoned shrimp in a single layer, working in two batches if your skillet feels crowded.
Cook for about 1 to 2 minutes per side, until the shrimp turn pink and curl into a loose C shape. Transfer the shrimp to a clean plate; they will look slightly underdone, which is exactly right.
Lower the heat to medium and add 1 tablespoon of the butter to the same skillet. Add the diced onion and bell pepper, and cook for 4 to 5 minutes, stirring occasionally, until softened.
Stir in the minced garlic and cook for 30 seconds, just until fragrant. Sprinkle the flour and smoked paprika over the vegetables and stir for 1 minute to cook off the raw flour taste.
Slowly pour in the remaining 1/2 cup of chicken broth while stirring, and scrape up the browned bits from the bottom of the pan. Simmer for 2 to 3 minutes, until the sauce thickens enough to lightly coat the back of a spoon.
Return the shrimp, along with any juices from the plate, to the skillet. Add half of the crispy bacon and stir gently to coat everything in the sauce.
Cook for 1 to 2 minutes, until the shrimp are opaque and cooked through. Remove the skillet from the heat and stir in the fresh lemon juice. Taste the sauce and add a pinch of salt or black pepper if needed.
Once the grits are tender, remove the pot from the heat. Stir in the remaining 3 tablespoons of butter until melted.
Add the shredded cheddar a handful at a time, stirring until each addition melts before adding the next. Pour in the whole milk and stir until the grits are silky and loose enough to spoon easily.
Season with the black pepper, then taste and add more salt if needed.
Spoon a generous scoop of cheesy grits into each warm shallow bowl. Top with the shrimp and spoon the pan sauce over the top.
Sprinkle with the remaining crispy bacon and the sliced scallions. Serve right away with hot sauce on the side for anyone who likes extra heat.