Taproot is an upgrade for the Bitcoin network, implemented on 14 November 2021. Along with Schnorr signatures, Taproot is one of the most anticipated technological upgrades to Bitcoin since the introduction of SegWit. Taproot's goal is to change the way Bitcoin's scripts operate to improve privacy, scalability, and security. This and more are made possible by combining Taproot with a related upgrade called Schnorr signatures.
Anyone familiar with the cryptocurrency community knows that privacy, scalability, and security are major concerns. While Bitcoin is the most popular cryptocurrency in the world, these issues still need to be addressed. Taproot aims to do just that.
Bitcoin has had its ups and downs, but it has proven to be the anchor that keeps the crypto-verse in firm standing. Regardless of the issues that have popped up over the years, like the Mt. Gox hack or the infamous Bitcoin hard forks, the crypto community has stood by Bitcoin.
The Taproot upgrade has been widely anticipated as a major first step toward solving Bitcoin's lack of privacy and other related concerns. On 14 November 2021, Taproot was activated on the Bitcoin network after approval from miners around the world. But what is Taproot, and how can it benefit Bitcoin? Let's dive in.
The limitations of the Bitcoin network
Another limitation was its privacy. While it was outlined in its whitepaper that Bitcoin’s transactions are private, all transaction details on the Bitcoin network are visible. This means that you can potentially know someone’s whole buying history by looking up their Bitcoin address.
To tackle the limitations, Bitcoin has been implementing upgrades to its network from time to time. However, amending the Bitcoin network is challenging due to its decentralized nature. There isn’t a single person to decide what changes should or shouldn’t be implemented, but a community decision by achieving consensus.
What is the Bitcoin Taproot upgrade?
Taproot is a soft fork that improves Bitcoin’s scripts to increase privacy, efficiency, and the network’s ability to process smart contracts. It is considered the most significant Bitcoin upgrade since the SegWit upgrade in 2017.
The Taproot proposal was first unveiled by Bitcoin Core developer Greg Maxwell in January 2018. In October 2020, Taproot was merged to the Bitcoin Core library after a pull request created by Pieter Wuille. For the upgrade to be fully deployed, node operators had to adopt Taproot’s new consensus rules. It eventually received support from 90% of miners and was officially activated on 14 November 2021 on block 709,632.
How does Taproot work?
There are 3 BIP that work together to achieve the Taproot upgrade. Each of the BIP affects and compliments the other in different ways.
Schnorr Signatures (BIP340)
The signature scheme adopted by Satoshi Nakamoto (the creator of Bitcoin) was the Elliptic Curve Digital Signature Algorithm (ECDSA). The choice of ECDSA over the Schnorr signature algorithm was due to the fact that it was already widely used, well-understood, secure, compact, and open-source.
However, the development of the Schnorr Digital Signature Scheme (SDSS) may be the starting point of a new generation of signatures for Bitcoin and other blockchain networks.
One of the main advantages of Schnorr signatures is that they’re able to take multiple keys inside a complex Bitcoin transaction and produce a single unique signature. This means that the signatures from the multiple parties involved in the transaction can be “aggregated” into a single Schnorr signature. This is known as signature aggregation.
In fact, Taproot makes it possible to hide the fact that a Bitcoin script ran at all. For example, spending Bitcoin using Taproot could make a transaction in a Lightning Network channel, a peer-to-peer transaction, or a sophisticated smart contract become indistinguishable. Anyone monitoring one of these transactions would see nothing but a peer-to-peer transaction. It's worth noting, though, that this doesn't change the fact that the wallets of the initial sender and final recipient will be exposed.
Taproot is where the Taproot upgrade got its name from. It builds on the SegWit upgrade in 2017 and uses the Merkelized Alternative Script Tree (MAST) to scale on the amount of transaction data on the Bitcoin blockchain.
However, these complex multi-signature transactions require multiple inputs and signatures to verify, which add a large amount of data to the blockchain and drag the transaction speed. At the same time, the transaction information is automatically revealed on the blockchain, which can potentially expose sensitive data about the address owners.
After integrating MAST, the amount of scripts and verification needed can be reduced, as a single MAST transaction can represent multiple scripts. So when a complex Bitcoin transaction is sent to MAST, the Merkle tree is not necessary for processing transactions. Instead of the full details, MAST only allows the executed conditions of the transaction to be committed to the blockchain. This can drastically reduce the volume of data required to store on the network. Not only does it provide greater scalability and higher efficiency to the Bitcoin blockchain, it also offers greater privacy for Bitcoin users.
How does Taproot benefit Bitcoin?
As we’ve already discussed, Taproot brought major improvements to Bitcoin’s privacy and enhanced its use cases. Other potential benefits include:
1. Improve network scalability by reducing the amount of data to be transferred and stored on the blockchain;
3. Lower transaction fees.
Why is the Taproot upgrade important?
The activation of Taproot is expected to boost the Bitcoin network’s functionality to facilitate fast and reliable transactions. Prior to Taproot, the Bitcoin protocol was still on Layer 1 developments while others like Ethereum had already gotten a head start in Layer 2 and DApps. After the upgrade, Bitcoin opens its path to deploy smart contracts and potentially expand its use cases to cover the trending NFT and DeFi markets in the future.
As the Bitcoin network becomes more efficient with lower fees, it could incentivize more transactions and wider adoption. In addition, users can retain their privacy for transactions, making BTC more competitive with other privacy coins in the market.
Taproot is a highly anticipated and widely supported upgrade to Bitcoin. Implemented along with Schnorr signatures, we see significant improvements in terms of privacy, scalability, security, and more. These upgrades can also generate more interest around the Lightning Network and encourage multisig to be more of an industry standard.
Regardless of your involvement in the Bitcoin community, the added benefits of improved privacy, efficiency, and security will likely impact your experience using Bitcoin.