In a large saucepan, bring 2 cups water and 2 cups chicken broth to a boil over medium-high heat. Add 1 teaspoon salt, then slowly whisk in 1 cup stone-ground grits (white or yellow). Reduce heat to medium-low and cook uncovered, stirring every few minutes and scraping the bottom to prevent sticking, until grits are thick and tender, 20-25 minutes.
While the grits cook, pat dry the shrimp with paper towels. Toss with smoked paprika, cayenne pepper, and a generous pinch of salt and black pepper. Set aside.
Heat a large skillet over medium heat and add the bacon. Cook until browned and crispy, about 8-10 minutes. Remove with a slotted spoon and set aside on a paper-towel-lined plate. Leave about 2 tablespoons of drippings in the pan.
Add the bell pepper, jalapeño pepper, and the whites of the green onions. Cook over medium heat, stirring occasionally, until softened, about 3-4 minutes.
Add the garlic cloves and cook 1 minute more until fragrant.
Increase heat to medium-high. Push the vegetables to the side and add the seasoned shrimp in a single layer. Cook 1-2 minutes per side, just until pink and opaque. Do not overcook. Remove shrimp and set aside.
Reduce heat to medium. Add the butter (for sauce) to the skillet and let it melt into the drippings and vegetables. Add the hot sauce (Crystal, Tabasco, or your favorite) and lemon juice, scraping up any browned bits from the bottom of the pan. Simmer 1-2 minutes until slightly reduced.
Once the grits are tender, remove from heat. Stir in 3 tablespoons unsalted butter, whole milk, and cheddar cheese until fully melted and creamy. Taste and adjust salt as needed. Cover to keep warm.
Return the shrimp to the skillet and toss to coat in the pan sauce, about 30 seconds. Spoon creamy grits into shallow bowls. Top with the shrimp mixture and all the pan sauce. Garnish with crispy bacon, green onion tops, and fresh parsley. Serve immediately with lemon wedges on the side.