The first bitcoin makeover in four years has been approved by miners around the world!
The upgrade is called Taproot, and it’s due to take effect in November. When it does, it will mean greater transaction privacy, efficiency and crucially, it will unlock the potential for smart contracts, a key feature of its blockchain technology that eliminates middlemen from even the most complex transactions. Taproot is the most significant upgrade to the bitcoin network since the block size increase in 2017 and it has been widely anticipated as a major first step toward solving bitcoin’s lack of privacy and other related concerns. But what is Taproot, and how will it benefit bitcoin?
Let’s dive in.
What is Taproot?
Taproot is a soft fork that improves Bitcoin’s scripts to increase privacy and improve upon other factors related to complex transactions on the Bitcoin Network (including timelock releases, multi-signature requirements, and others).
Without Taproot, anyone can detect transactions that use those complex functionalities, which require the creation of multiple transactions. However, the Taproot upgrade will make it possible to “cloak” all the moving parts of a bitcoin transaction that includes these features, making it look like a single transaction.
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, making anyone monitoring one of these transactions 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 expected to be implemented along with another upgrade called Schnorr signatures. This not only makes Taproot’s implementation possible but also enables a much-anticipated feature called “signature aggregation”.
What are Schnorr signatures?
Schnorr signatures consist of a cryptographic signature scheme developed by Claus Schnorr – a German mathematician and cryptographer.
Bitcoin currently uses the ECDSA algorithm to generate cryptographic signatures for a given message and secp256k1 keypair. Schnorr is an alternative algorithm with several key advantages. One is that when multiple keys are used to sign the same message with Schnorr, the resulting signatures can be combined into a single signature. This means that the signatures from the multiple parties involved in a complex bitcoin transaction can be “aggregated” into a single Schnorr signature – known as signature aggregation. This can be used to significantly reduce the size of multisig payments and other multisig related transactions.
Among a number of other benefits, Schnorr signatures are primarily known for their simplicity and efficiency in generating short signatures.
Benefits of Taproot for Bitcoin
When combined with Schnorr signatures, Taproot will bring major improvements to bitcoin’s privacy. This will allow wallets with more complex spending conditions, like a multisig wallet or one that uses time-locking, to no longer be distinguishable from simple single signature wallets.
Besides enhanced privacy, other potential benefits include:
Reduced transaction fees – The transaction data size for making complex Bitcoin transactions will be dramatically reduced. That means transaction fee costs for using more complex Bitcoin wallet features (such as multisig, or time-locking) will decrease significantly leading to much cheaper transaction fees from your bitcoin multisig wallet.;
More wallet functionality – A new type of signature will enhance smart contract functionality in Bitcoin, making it easier and cheaper for users to set more complicated conditions for a transaction.;
Higher TPS rate – More transactions per block.
Closing thoughts
Taproot is one highly anticipated and widely supported upgrade to Bitcoin. It is considered the biggest most important makeover since 2017 and it gets implemented along with Schnorr signatures, we will see significant improvements in terms of privacy, scalability, security, and more. These upgrades can also generate more interest around the Blockchain Network and encourage multisig to be more of an industry standard.
