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1. What is Taproot?

Blockchain needs to grow and evolve, whether it’s a Bitcoin, Ethereum, or other cryptocurrency network. With Soft Forks, it is possible to modify consensus rules on the blockchain to improve operations. Taproot on Bitcoin is just such a Soft Fork. What changes did the biggest update to Bitcoin since SegWit in 2017 introduce? 

History of the update

On November 14, 2021, an update to the Bitcoin network, Taproot, went into effect. Since the introduction of SegWit, Bitcoin’s Taproot has been the most anticipated event. What did the upgrade introduce? Taproot changed the performance of BTC scripts, improved privacy, scalability, and security. The update took place alongside another related enhancement – the Schnorr identification scheme. The update was proposed by Greg Maxwell in January 2018. He developed Bitcoin Core. In 2020, Taproot was included in the Bitcoin Core library, after a pull request by Pieter Wuille. Finally, it received support from 90% of miners and was officially activated on block 709 632.

Taproot – what does it mean to Bitcoin?

The name ‘Bitcoin Taproot’ comes from the English word ”taproot” – something that is the deepest, and strongest, part of a plant. It is completely the same with this update. It changes the Bitcoin system, but partly also the philosophy of this asset. At the same time, it brings new features – in the areas of security and scalability.

Taproot for Bitcoin is a soft fork. Its main purpose was to address privacy and other flaws in Bitcoin. For the update to go live, it had to be approved by many network users. In the case of a soft fork, two scenarios are possible. The update is activated by miners (MASF) or by users (UASF). In the case of Taproot, the choice to rely on miners has been controversial. This also distinguishes it from hard fork, where it is the entire network that has to agree to it.

The update consisted of three parts: the Tapscript, Schnorr Signatures and Taproot. Bitcoin Improvement Proposals (BIP) – BIP 340, 341 and 342 introduce each of these parts. For better understanding, we will now explain each of them.

Tapscript

This is a new form of Tapscript that was included in BIP 342. It is the one that enables Pay-to-Taproot (P2TR) payments. What does this mean? Users will be able to choose to transact using Schnorr’s public key or any method completely integrated into the network. This gives the user the choice of whether the transaction should be anonymous or public – depending on the use case. Additionally, Tapscript will provide newer forms of transaction validation.

Schnorr signatures

Until Taproot was activated in block 709 632, Bitcoin used the Elliptic Curve Digital Signature Algorithm (ECDSA). This authentication protocol was not obvious even to Satoshi Nakamoto, who from the beginning wanted to use Schnorr signatures; unfortunately, they were patented, and their implementation would have delayed the publication of Bitcoin’s Whitepaper.

Schnorr’s signatures work in such a way that multiple keys enter a transaction and are validated with a single signature. To put it simpler – if multiple users enter one transaction, they will be anonymized and only one transaction will appear. Schnorr’s signatures are smaller than traditional signature or Bitcoin keys. This will save on fees, and also more transactions will fit in one block. Bottom line – with signatures, we gain faster block validation and more transactions per second.

The new process retains common rules with the old one, as both protocols belong to the same elliptic curve family. Nevertheless, its usability has increased tenfold compared to the old system.

Taproot

Taproot is part of BIP 341. BIP 341, refers to all three script updates and contains the data necessary to correctly integrate Tapscript and Schnorr Signatures. The benefits of these new features are enormous and should enable greater security, confidentiality, and scalability for Bitcoin.

What has Taproot changed?

Taproot addresses the following limitations of the Bitcoin network:

  • Improved transaction privacy.
  • Lower transaction costs.
  • Higher TPS (the number of transactions the network processes each second).
  • Increased scalability, by reducing the amount of data required to be transferred and stored on the blockchain.
  • No ability to change the signature of a transaction.
  • Increases the possibility of smart contracts, while maintaining privacy.
  • Transactions on the block to an observer look the same, despite internal changes.

Summary

By now, you know how important this update was for Bitcoin as a whole. This is a massive extension for this flagship cryptocurrency. The update was so automatic that users didn’t even notice the new functionality.

Nevertheless, it is a milestone for the further development of the chain. Taproot is also a good foundation for further improvements to the entire BTC ecosystem.