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Bitcoin Taproot Upgrade

Taproot is an upcoming, soft fork upgrade coming to the Bitcoin blockchain network. A soft fork is a change to the software protocol where only previously valid transaction blocks are made invalid. Old nodes will recognize the new blocks as valid, therefore a soft fork is backwards-compatible. A soft fork only requires the majority of miners to upgrade to the new rules, comparatively a hard fork requires all nodes to upgrade.

Bitcoin Taproot Upgrade

Taproot is one of the most highly anticipated updates to how Bitcoin operates since Segwit was introduced (Segwit is the process by which block size limit is increased by removing signature data from Bitcoin transactions). The goal of Taproot is to modify how Bitcoin’s scripts function to improve privacy, scalability and security. This (and more) will be possible by combining the Taproot upgrade with a related change that will be made to the network called Schnorr signatures. Taproot is expected to be released in November, 2021. As mentioned this is the first major update since Segwit which saw a hard fork in the network and the creation of Bitcoin Cash.

How do changes to the Bitcoin Network come about?

Nobody owns the Bitcoin network similar to how nobody owns the technology behind email. Bitcoin is controlled by all the Bitcoin users around the world. While developers are improving the software, they can't force a change in the Bitcoin protocol because all users are free to choose what software and version they use. As Bitcoin has no formal governance structure, changes to how the network operates can be submitted as BIPs (Bitcoin Improvement Proposals). Anybody can submit such a proposal, however the majority of the community must agree with said changes for them to be implemented. BIPs should provide a concise technical specification of the attribute and a rationale for introducing said new feature(s). This is the standard by which potential developments to the Bitcoin network are communicated. Greg Maxwell (Bitcoin Core developer) initially proposed the Taproot in January 2018. It was merged to the Bitcoin Core library as of October 2020. For the upgrade to be fully deployed, node operators must adopt Taproot’s new consensus rules. Activation could take some time depending on how quickly users and contributors adopt the suggested changes.

What changes will Taproot implement?

Taproot is a soft fork that improves Bitcoin’s scripts to increase privacy and improve upon other factors related to complex transactions. Currently, the Bitcoin network can use various features that make transactions more complex, including timelock releases, multi-signature requirements, and others. Without Taproot, anybody can detect transactions that use these complex functionalities, which require the creation of multiple transactions. However, the Taproot upgrade will make it possible to "cloak" all the specifications of a Bitcoin transaction that includes these features. Even if the transactions utilise the above mentioned attributes, they will appear to be a single transaction. This is a step forward for Bitcoin privacy advocates. Taproot makes it possible to hide the fact that a Bitcoin script ran at all. The update would make it impossible to distinguish between a Lightnight Network transaction, a peer-to-peer (P2P) transaction, or a sophisticated smart contract transaction. Any individuals monitoring one of these transfers would simply see a standard P2P transaction. This doesn't change the fact that the wallet address of the sender and recipient would still be visible.

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?

Bitcoin’s upgrade is related to it’s digital signatures, these are essentially the fingerprint an individual leaves on every transaction they make. Bitcoin’s creator, Satoshi Nakamoto, initially implemented what is known as “Elliptic Curve Digital Signature Algorithm” (ECDSA). Taproot will switch Bitcoin’s signature protocol over to something known as Schnorr signatures. Schnorr signatures consist of a cryptographic signature scheme developed by Claus Schnorr (cryptographer and mathematician). They are primarily known for their simplicity and efficiency in generating short signatures. The initial 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.

One of the main driving forces in adopting Schnorr signatures is that they’re capable of combining multiple keys inside a complex Bitcoin transaction and producing 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 - known as signature aggregation. As Bitcoin is an open network, it will still be possible to track and view transactions on the blockchain -however the finer details of more complex transactions will be aggregated improving user privacy following the update.

Bitcoin Taproot Upgrade

Until now smart contracts on the Bitcoin network have been cumbersome and costly. Smart contracts are self-executing agreements that function on a blockchain, governing transactions. The introduction of Schnorr signatures along with Taproot will make these smart contracts cheaper, smaller and more efficient. Currently, smart contracts can be created both on Bitcoin’s core protocol layer and on the Lightning Network, a payments platform built on Bitcoin, which enables instant transactions. Smart contracts executed on the Lightning Network typically lead to faster and less costly transactions.

The combination of Taproot and Schnorr signatures will mean Bitcoin will have a reduced amount of data to be transferred (and stored) on the blockchain. Bitcoin’s TPS (Transactions per second) rate will increase along with how many transactions can be stored in each block. The fees associated with transactions on the network will also be reduced as there will be less data to transfer.

Closing Thoughts:

The Taproot upgrade has so far been a lot more well received than Segwit was in 2017. Most users and contributors seem to be focusing on how to make it a reality rather than if it should be done. This bodes well for mass adoption on the network. If Taproot (and Schnorr Signatures) are successful and function as intended, the above factors will combine to bolster Bitcoin’s ability to function as a long term cryptocurrency. Cheaper fees, faster transaction times and more functional smart contracts will allow Bitcoin to continue to grow as the world’s leading crypto!

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