Taproot is one of the biggest upgrades to the Bitcoin network, going live on 14th November, 2021. The upgrade was one of the most eagerly anticipated and most important technological upgrades to Bitcoin since 2017’s Segregated Witness (SegWit) upgrade, and is designed to improve the efficiency and privacy of the Bitcoin network. This article takes a look at why the Taproot upgrade was implemented, what are the changes that it enforces, and how it benefits Bitcoin in the long run.
The Taproot Upgrade aims to improve the privacy and efficiency of the Bitcoin network significantly. The upgrade also encourages the implementation of smart contracts on Bitcoin, eliminating intermediaries from transactions and paving the way for Decentralized Finance (DeFi) for Bitcoin. Bitcoin miners signaled their support for the Taproot upgrade, achieving a 90% critical consensus mark on 21st June 2021. However, the upgrade was not finalized until a soft fork at block 709,632 on 14th November 2021.
There was a six-month period between the lock-in of the upgrade and the activation. This was done to give miners and node operators to upgrade to the Bitcoin CoreVersion 21.1, the open-source software containing the Taproot upgrade. Like SegWit, Taproot improves the efficiency and privacy of Bitcoin, but on a much larger scale, and a significant impact is expected over the next few years.
In simplest terms, the Taproot upgrade aggregates multiple transactions and signatures together. Before the implementation of Taproot, transactions on the Bitcoin network were slow as each signature was validated against a public key. This method significantly increased the time taken for complex transactions that required multiple inputs and signatures. Taproot allows for the batching of multiple signatures, enabling them to be validated at once. This is extremely beneficial for transactions that involve multiple parties, with multiple inputs condensed into a single one. The upgrade also has significant implications for privacy, making it difficult for observers to distinguish between single and multisig transactions, making it more difficult to distinguish between participants on the blockchain.
The Taproot upgrade consists of three Bitcoin Improvement Protocols (BIPs), Schnorr Signatures (BIP340), Taproot (BIP341), and Tapscript (BIP342). Let’s take a closer look at each.
Schnorr Signatures enables the implementation of a smaller and more secure cryptographic signature. It aggregates multiple keys to fall into a single transaction and validates them through one signature. This allows multi-signature transactions and smart contracts to commit the same amount of data as a single transaction on the blockchain, recording a single aggregated public key and a single aggregated signature rather than all of the keys and signatures of all participants. This results in a significantly lower strain on the blockchain and hiding specific transaction details from observers.
Tapscript or BIP 342 is an upgraded version of Bitcoin’s programming language. It leverages Schnorr’s efficiency, and also makes it significantly easier to implement future updates to Bitcoin by allowing new opcodes (transaction instructions) to be seamlessly introduced.
Taproot builds on the SegWit upgrade, using the Merkelized Alternative Script Tree (MAST). Merkle trees are used in cryptography to prove that data exists in a set without having to reveal the entire data in the set. The use of MAST allows only executed conditions of a smart contract transaction to be committed to the blockchain instead of the complete details of possible outcomes. By committing only the executed transaction details, Taproot affords users greater privacy, with observers unable to see all transaction details such as other outcomes and unexecuted transaction conditions.
Taproot’s impact will be felt over the next few years as adoption increases. Taproot significantly improves the Bitcoin blockchain by increasing efficiency and privacy. It improves privacy by committing less transactional information to the blockchain. This means that there is less data available for anyone checking the Bitcoin ledger. Less data also means there is more space in each block for transactions, reducing fees and increasing throughput.
Taproot is also expected to lay the foundations of DeFi on Bitcoin, allowing for the implementation of smart contracts with details of participants obscured. The upgrades will also enable the quick and efficient scaling of the Lightning Network, which will help Bitcoin become a medium of exchange, along with already being a store of value.
Taproot makes the Bitcoin Network more efficient, incentivizing new users to conduct transactions, and leading to wider adoption. The upgrade also allows Bitcoin users to retain their privacy, enabling it to compete with other privacy-focused coins in the market while also bringing significant improvements to security and scalability. The Lightning Network also benefits from the upgrade while encouraging multisig transactions and making them an industry standard.
Taproot brings significant upgrades to the Bitcoin network, and is slated to have a significant impact on the blockchain. If this piques your interest in Bitcoin, and you wish to purchase it, then look no further than Rain. Rain is a completely secure trading platform, regulated by the Central Bank of Bahrain (CBB). Simply set up your account, and purchase your first Bitcoin!
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