Taproot Upgrade: Bitcoin Gets More Anonymous and Faster

What is the Bitcoin taproot upgrade?

Taproot is the major upgrade for bitcoin that introduces a lot of new features to the bitcoin network, including better privacy and security for users, plus cheaper transactions, which is something that a lot of investors are excited about. Unlike the 2017 upgrade, which is referred to as the last civil war, the Taproot upgrade has near-universal support now in terms of what is actually changing. A large portion of the bitcoin transformation is due to digital signatures, which function similarly to fingerprints and individual's leaves on every single transaction.

  • Gregory Maxwell, a co-founder of Blockstream, created Taproot in 2018. Since then, Peter Welle, Tim Ruffing, Johnson Lau, and other developers have contributed to the BIPs, which were included in the update.
  • Taproot activation was approved by 98 percent of miners in June 2021, demonstrating its value to the community. In September, a new version of the popular Bitcoin Core client (v 22.0) was launched, which included update support.
  • What taproot upgrade does is hide the details of some of the more complex transactions, which offers greater privacy for some users. Taproot is the implementation of the MAST (Merkelized Abstract Syntax Trees) protocol. MAST will improves the effectiveness of large-scale data processing.
  • Taproot is the most significant improvement to the Bitcoin network since the 2017 Segregated Witness upgrade, which addressed scalability concerns.
  • Schnorr signatures, which help Bitcoin transactions be more secure, private, and cost-efficient, have been introduced in the taproot update. The Taproot upgrade improves things for the network, including secure and smart contract functions.
  • Bitcoin's capacity for scripting has been improved by bringing it in line with competing block-chains like Ethereum. It also lets the users perform more complex and smart contracts.

 

How Does It Work?

There are mainly 3 (Bitcoin Improvement Proposals) BIPs that work together to achieve the taproot upgrade. Each has different compliments.

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Schnorr Signature (BIP340)

It is one of the most secure and fastest ways to validate bitcoin network transactions. Due to the widespread use of ECDSA, Satoshi Nakamoto adopted it over the Schnorr signature.

The advantage of the Schnorr signature is that it is able to take multiple keys during bitcoin transactions and produce a single unique signature.

 

Taproot (BIP341)

The bitcoin transaction network is protected by public and private keys. To check the real owner, the spender needs to provide a signature. A MAST transaction can represent multiple scripts when a complex bitcoin transaction is made. It allows the execution of conditions on the blockchain.

Taproot Upgrade: Bitcoin Gets More Anonymous and Faster
Fig. 1. Merkelized Abstract Syntax Tree

 

A Merkle tree is created by hashing each script individually to get a unique identifier. Then the identifier is paired with another identifier and hashed again, creating another unique identifier for that pair.

As you can see, the Merkel root address is hash 1, 2, which uniquely identifies the whole set in a few bytes of data. We can also be referred to as the Merkle Root, a black box for coins. It provides multiple spending conditions, which are to be structured in a Merkle Tree. If the conditions are met, the Merkel root and path are used to verify that the condition lies in the Merkle tree while others are kept hidden.

 

Tap script (BIP342)

It is a programming language upgraded to Bitcoin Script, which paves the way for the other two BIPs.
Flexibility for new features potentially helps bitcoin networks support and make smart contracts in the future. To implement the P2TR transaction, BIP 342 updates and adds various opcodes. The newly generated scripts are used to verify the taproot's spending and Schnorr's signature. The flexibility of P2TR is maximized by spending to allow for upgrades that are truly not yet foreseen.

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What is the significance of the Taproot upgrade in Bitcoin?

The Taproot upgrade authorized the blockchain of the cryptocurrency that carries out a complex transaction. After this upgrade, Bitcoin will become more competitive with Ethereum for processing smart contracts. To eliminate the middle-man from transactions, smart card unlocks are used.

These contracts are self-executing agreements that live on the blockchain, and they are essential in powering the world's NFTs and decentralized finance, or DEFI. Now, Ethereum remains the most used blockchain for DEFI apps, but this bitcoin upgrade gives it more of an advantage and will likely lead to an increase in day-to-day applications for bitcoin. The Taproot update makes smart contracts cheaper and smaller in regards of blockchain space, and one expert believes that this increased functionality and efficiency has mind-blowing potential.

 

What Does “Taproot upgrade” Mean for Investors?

The misconception about what the taproot upgrade in Bitcoin means for stakeholders, investors, and participants is that taproot enables flexible smart contracting capabilities that will challenge the popular smart contract blockchain, Ethereum. To enable bitcoin-denominated commerce in El Salvador, the lightning network of bitcoin smart contracts is being used. With the help of this upgrade, the usability of what is known as a Discreet Log Contract (DLC) improves.

This upgrade brings the feature that the network will now be able to process more smart cards. It has become more data-efficient and leads to lower transaction fees. The launch of the lightning network in 2017 was the last major upgrade, but now the taproot upgrades bring the next phase of innovation. This version provides several advantages to both Taproot users and those who do not use Bitcoin.

 

Summary

In summary, BIP 341 (also known as the Taproot upgrade) enhances the efficiency, security, and flexibility of bitcoin scripting while also allowing developers to write complex scripts. The complicated transaction saved significant transaction fees as the intensive scripts did not have to pay fees higher than those for public key hash transactions. The complicated transaction can be executed by just using one signature, pay to witness scrip hash multi-signature. Each subkey adds 8.5 vbytes and each signature adds 18.25 vbytes.

With the help of this Taproot upgrade, many applications use the key-based spending path, which is private and can be generalized to multi-signature policies. One of the interesting things enabled by the taproot upgrade is cross-input aggregation. It is useful in multi-signature transactions. Cross-input aggregation is not included in BIP 341 because of its extensive changes in the previous one.

 

Further Reading

Bitcoin
Bitcoin Forks
Taproot Wikipedia

 

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