After Bitcoin developers enabled Segregated Witness (SegWit) in 2017, the most significant upgrade in Bitcoin’s history was the Bitcoin Taproot update. On a far bigger scale, the Taproot upgrade attempts to improve the network’s privacy and efficiency, but the long-term impact would be more significant.
This improvement will also stimulate the usage of smart contracts, which can eliminate intermediaries from transactions and open the way to decentralised financing (DeFi) for the leading cryptocurrency.
With a 90% consensus on June 12, 2021, Bitcoin miners voted in favour of the update. A soft fork of the protocol in block 709,632 on November 14, 2021, enabled the Bitcoin Taproot upgrade date, which the developers did not complete until November of that year.
Because of this, node operators and miners have had a full six months to fully update to Bitcoin Core version 21.1, which includes the Taproot upgrade.
The Taproot upgrade to the Bitcoin protocol has brought about several significant improvements, and this article explains how these changes will help Bitcoin in the long run.
Who Developed Bitcoin Taproot?
Since the developers implemented SegWit in 2017, Bitcoin Core developers have been working on methods to increase its capabilities and first proposed by one of the cryptocurrency’s most prominent creators, Greg Maxwell, in 2018.
Three Bitcoin Improvement Proposals (BIPs) Taproot. Pieter Wuille wrote these BIPs. A.J. Townes, Jonas Nick, and Tim Ruffing joined the project in 2020 and worked with Maxwell and Wuille to implement the improvement.
There will not be a need to divide Taproot from the Bitcoin network into two independent blockchains and coins, as was the situation with Bitcoin Cash, because Taproot is a soft fork.
As a result of SegWit’s dramatic repercussions on the cryptocurrency, Bitcoin Cash came into existence in 2017. This improvement increased the size of Bitcoin blocks without sacrificing essential features like decentralisation.
On the other hand, proponents of larger blocks argued against utilising SegWit. Bitcoin (BTC) and Bitcoin Cash (BCH) were created due to a hard Bitcoin blockchain split when the consensus on the same protocol was no longer in place.
The Taproot upgrade is less controversial than SegWit and is not a hard fork. As a result of its gradual enhancements to the code, miners were immediately on board.
Other parties, including exchanges, merchants, and regular node operators, will gradually upgrade to the current version of the Bitcoin mining software based on their priorities.
What Is The Taproot And How Is It Important To Bitcoin?
Taproot aims to speed up, improve, and secure Bitcoin. However, the upgrade batches signatures and transactions, making Bitcoin transaction verification faster and easier.
Benefits Of Taproot To Bitcoin
A digital signature, akin to a user’s fingerprints, was used to verify each transaction in Bitcoin until the discovery of Taproot. Multiple and sophisticated signatures, such as multi-signature wallets, can now be aggregated and validated together, rather than one at a time as before.
It is the implementation of Schnorr signatures over the Elliptic Curve Digital Signature Algorithm (ECDSA) that will allow for this massive shift. The ECDSA algorithm creates a signature from the wallet’s private key and confirms that the correct owner is carrying out the transaction.
In terms of security, Schnorr signatures are superior to ECDSA. Complex transactions can be checked in batches rather than individually as a single transaction because of their linearity. You can achieve a more precise and efficient technology by allowing multiple parties to work together to establish a single signature valid for the total of their public keys.
Aggregating signatures speeds up and lowers the network’s overall cost, increasing the block’s storage capacity while making it more efficient. It opines that one of the biggest obstacles to widespread acceptance of Bitcoin is the inability of Bitcoin to scale.
Benefits Of The Taproot Upgrade For Bitcoin
There will be no distinction between multi-signature and single-signature transactions with the Taproot. Identifying the transaction inputs of each participant is made more complicated if there is a maintenance of the private data in this manner.
An important step forward was allowing Bitcoin to contain smart contracts without concern that multiple signatories and their complicated transactions could overload the system. Single-signature marketing with less amount of data becomes feasible.
The Taproot Upgrade And Interconnected Updates
The Taproot update combines three scalability-related initiatives. Changing Bitcoin’s protocol or fixing vulnerabilities requires a specialised process. In the lack of a central authority, a BIP begins with simple ideas submitted by developers.
When other developers approve the proposal, it adds to the Bitcoin Core’s GitHub repository of pending BIPs. The Taproot update includes three BIPs.
1. BIP 340 – Schnorr Signatures
Schnorr is faster, more secure, and less data-intensive than ECDSA.
2. BIP 341 – Taproot
Taproot improves Bitcoin privacy and versatility. It also enables MAST, which condenses complex Bitcoin transactions into a single hash, decreasing transaction fees, saving memory use, and enhancing Bitcoin’s scalability.
3. BIP 342 – Tapscript
Tapscript is the language for writing scripts that Taproot script-path spends use. This update uses Schnorr’s efficiency and gives future upgrades more options.
Bitcoin Taproot Smart Contracts
As a result of the Taproot upgrade, smart contracts will become more affordable and smaller because they will no longer take up so much space on the Bitcoin blockchain. These self-executing agreements between two parties, based on blockchain technology, can generate a safe transaction without using a third party.
Taproot’s solution to scalability enables Bitcoin to host smart contracts on the base chain. Hence, the top cryptocurrency becomes a direct competitor of Ethereum, the more popular smart contract challenger.
Smart contracts have a lot of potential for real-world use, and this latest update gives Bitcoin many more options.
One of the most effective uses of smart contracts is in decentralised finance. They can make it easier to borrow or lend money safely without the involvement of a third party, such as a bank or financial institution.
Smart contracts are essential for any transaction or ordinary practical activity, from paying rent monthly to declaring ownership of an object.
What The Bitcoin Taproot Upgrade Means For Crypto Investors
Taproot’s upgrading to Bitcoin’s blockchain means that smart contracts will no longer take up so much space, making them more inexpensive and smaller. Using blockchain technology, these self-executing agreements between two parties can produce a secure transaction without the involvement of a third party.
Blockchain-based smart contracts are now possible thanks to Taproot’s scaling solution. As a result, the leading cryptocurrency competes directly with Ethereum, the more popular smart contract challenger.
The latest version of Bitcoin’s smart contracts provides a wide range of possibilities for its use in the real world.
As a means of enabling decentralised banking, smart contracts have proven to be extremely useful. A bank or other financial institution does not have to be involved in borrowing or lending money when using these tools.
Smart contracts are also helpful for any transaction or everyday practical activity, from renting a house to claiming ownership of a specific object.
How the upgrade may affect Bitcoin’s price in the future is difficult to predict. So far, the soft fork is already priced in and will mainly boost network efficiency while having no immediate influence on pricing fluctuations.