What is Taproot and how does it benefit Bitcoin?

Abstract

Taproot is an upgrade of the Bitcoin network, launched on November 14, 2021. Taproot and Schnorr signatures have been highly anticipated Bitcoin technology upgrades since the advent of SegWit. Taproot aims to change the way Bitcoin scripts operate, improving privacy, scalability and security. Taproot, combined with a related upgrade called Schnorr signatures, will hopefully achieve these goals and more.

All users familiar with the cryptocurrency community know that privacy, scalability and security are the focus of the community. Although Bitcoin is the most popular cryptocurrency in the world, these issues still need to be resolved. Taproot's goal is to solve the above problems.

Introduction

Although Bitcoin has its ups and downs, it turns out that it is still the "backbone" supporting the cryptocurrency world. Over the years, although the cryptocurrency world has experienced various problems such as the Mt. Gox hack and the infamous Bitcoin hard fork, the cryptocurrency community has always supported Bitcoin.

However, certain issues cannot be ignored—the most significant one being privacy. Bitcoin is a public blockchain, and anyone can monitor transactions on the network. For some, this is the biggest concern. Although it is possible to improve anonymity through technologies such as currency mixing and CoinJoin, these technologies cannot turn Bitcoin into a privacy coin. Although Taproot cannot do this, it may improve the anonymity of the Internet.

The Taproot upgrade is highly anticipated and is seen as an important starting point for solving Bitcoin’s poor privacy and other related issues. On November 14, 2021, with the unanimous approval of miners around the world, Taproot was activated online on the Bitcoin network. What exactly is Taproot? How does it benefit Bitcoin? Let’s dig a little deeper.

Limitations of the Bitcoin Network

Although it is the first and most popular cryptocurrency, the Bitcoin network still has shortcomings in some aspects, such as transactions Slow. When it was created, Bitcoin processed 7 transactions per second, but as the network's popularity and users increased, so did transaction speeds and fees. After the price of Bitcoin soared, the average transaction fee on the Bitcoin network hit a record high in 2021, reaching around $60. Some believe that high fees and slow transaction speeds will hinder the growth of the Bitcoin network. In order to improve transaction capabilities, developers launched the Segregated Witness (SegWit) upgrade in 2017, allowing a single block to accommodate more transactions. However, high fees remain widespread.

Another limitation is privacy. Although Bitcoin states in its whitepaper overview that its transactions are private, all transaction details on the Bitcoin network are publicly visible. In other words, all personal purchase history can be obtained based on the Bitcoin address.

In order to break through these limitations, Bitcoin has implemented network upgrades many times. However, due to the decentralized nature of Bitcoin, network modifications are extremely challenging. Whether or not to implement changes is not a decision made by one person, but a consensus from the community.

What is Bitcoin Taproot upgrade?

Taproot is a soft fork that optimizes Bitcoin scripts to improve privacy, efficiency, and the network's ability to process smart contracts. This is recognized as a major upgrade of Bitcoin since the SegWit upgrade in 2017.

The Taproot upgrade consists of 3 different Bitcoin Improvement Proposals (BIPs), including: Taproot, Tapscript and its core, a new digital signature scheme called "Schnorr Signature". Taproot aims to bring many benefits to Bitcoin users, such as improved transaction privacy and lower transaction fees. It will also allow Bitcoin to perform more complex transactions, broadening use cases to compete with Ethereum, especially the smart contract capabilities and network's impact on decentralized finance (DeFi) and non-fungible tokens (NFTs) support.

The Taproot proposal was originally proposed by Bitcoin Core developer Greg Maxwell in January 2018. In October 2020, Pieter Wuille created a code pull request to merge Taproot into the Bitcoin Core code base. In order to fully deploy the upgrade, node operators must adopt Taproot’s new consensus rules. The proposal was ultimately supported by 90% of miners and was officially activated in block 709,632 on November 14, 2021.

How does Taproot work?

Taproot upgrade is implemented by the collaboration of 3 Bitcoin Improvement Proposals (BIP). The proposals complement each other in different ways.

Schnorr Signature (BIP340)

Schnorr signature improves the speed and security of verifying transactions on the Bitcoin network. The signature consists of a cryptographic signature scheme developed by German mathematician and cryptographer Claus Schnorr. Schnorr's algorithm was protected by a patent for many years, but the patent officially expired in 2008. Schnorr signatures have many advantages, especially in short signature generation, and are known for their simplicity and efficiency.

The signature scheme adopted by Bitcoin founder Satoshi Nakamoto is called "Elliptic Curve Digital Signature Algorithm (ECDSA)". ECDSA was chosen over Schnorr signature algorithm because the former is widely used, easy to understand, safe and stable, lightweight and open source.

However, the advancement of the Schnorr Digital Signature Scheme (SDSS) may be the starting point for the application of a new generation of signature technology in Bitcoin and other blockchain networks.

One of the core advantages of Schnorr signatures is that they can extract multiple sets of keys in complex Bitcoin transactions and generate unique signatures. Therefore, the signatures of all parties in the transaction can be integrated into a single Schnorr signature, a process called "signature aggregation."

In fact, Taproot can make it completely invisible that the Bitcoin script is running. For example, with Taproot, different Bitcoin payment methods look the same, whether they are lightning network channel transactions, peer-to-peer transactions, or transactions through complex smart contracts. Monitors of these transactions see only peer-to-peer transactions. However, it is worth noting that this does not change the fact that the wallet information of the sender and the final recipient is exposed.

Taproot (BIP341)

Taproot is named after the Taproot upgrade, which was created based on the 2017 SegWit upgrade and uses the Merkelized Alternative Script Tree (MAST) to scale Bitcoin The amount of transaction data in the blockchain.

Transactions in the Bitcoin network are protected by public and private keys. To pay for digital assets in the wallet, users need to provide a signature to prove their true owner's identity before they can transfer tokens. In addition to single-signature transactions, transactions in the Bitcoin network can also increase complexity by releasing time locks, requiring multiple signatures (multisig), and other functions.

However, complex multi-signature transactions require multiple inputs and signature verifications, which will add a huge amount of data to the blockchain and slow down the transaction speed. Moreover, transaction information is automatically displayed in the blockchain, which exposes the address owner’s sensitive data.

After MAST integration, a single MAST transaction can represent multiple scripts, reducing the number of scripts and verifications required. After complex Bitcoin transactions are sent to MAST, a Merkle tree is not needed to process the transaction. MAST only allows the execution conditions of a transaction to be submitted to the blockchain, rather than sending all details. This will significantly reduce the amount of data the network needs to store. This not only improves the scalability and efficiency of the Bitcoin blockchain, but also allows Bitcoin users to enjoy greater privacy.

Tapscript (BIP342)

Tapscript is a programming language upgraded to Bitcoin Script to facilitate 2 other Bitcoin Improvement Proposals (BIPs). It is a collection of opcodes, which are instructions used to specify how to perform a transaction. With more space available in blocks, new features will be more flexible, which will facilitate the Bitcoin network to support and create smart contracts in the future.

How does Taproot benefit Bitcoin?

As mentioned in the previous discussion, Taproot can significantly improve Bitcoin’s privacy and broaden its use cases. Other potential advantages include:

1. Improve network scalability by reducing the amount of data transmitted and stored in the blockchain;

2. Process more transactions per block (increased per second Transaction volume (TPS) rate);

3. Reduce transaction fees.

Another advantage of Taproot is the removal of signature malleability, a known security risk in the Bitcoin network. In short, from a technical perspective, signature malleability means that the signature can be modified before the transaction is confirmed. In this way, an attacker can create the illusion that the transaction never occurred. This would expose Bitcoin to the notorious double-spending problem, compromising the integrity of the distributed ledger.

Why is Taproot upgrade important?

Activating Taproot can improve the functionality of the Bitcoin network and facilitate fast and reliable transactions. Before Taproot, the development of the Bitcoin protocol was still in the Layer 1 stage, while other protocols such as Ethereum had taken the lead in Layer 2 and DApp. After the upgrade, Bitcoin has enabled the deployment of smart contracts, expanded use cases, and caught up with future trends in the NFT and DeFi markets.

As the efficiency of the Bitcoin network improves and fees decrease, its transaction volume and application scope will be boosted. In addition, Bitcoin also guarantees the privacy of user transactions, making it a more competitive privacy currency in the market.

Summary

Taproot is a highly anticipated and widely supported Bitcoin upgrade. Implemented simultaneously with Schnorr signatures, privacy, scalability, security and other features will be significantly improved. These upgrades will increase the appeal of Lightning Network and promote multi-signature to become a widely used industry standard.

No matter how involved you are in the Bitcoin community, optimizing privacy, efficiency, security and other factors will create added value for users and improve the Bitcoin experience.

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