What is the Bitcoin Taproot Upgrade?

Four years on from the last major Bitcoin upgrade, Taproot activated in November 2021. The much-anticipated update to Bitcoin’s network will reduce the block space required to create complex smart contracts, which will increase privacy and reduce transaction fees.

The last significant update to Bitcon’s network was the 2017 Segregated Witness (SegWit) update, which famously divided the cryptocurrency’s supporters, leading to the creation of Bitcoin Cash. But four years later, on June 12 2021, miners successfully signalled support for Taproot, setting the wheels in motion for one of Bitcoin’s biggest upgrades to date.

What is Taproot?

Taproot is an upgrade to the Bitcoin network that was proposed in 2018 by Gregory Maxwell, a developer for Bitcoin Core. The idea is that Taproot will simplify smart contract transactions by combining the public keys of users that are involved into a new public key to increase efficiency and privacy.

This key will then be used to create a new, unique signature that only applies to that specific combination of addresses. These signatures are called Schnorr signatures and were developed by German mathematician and cryptographer Claus Schnorr.

What are the benefits?

A typical on-chain Bitcoin transaction happens when a public address shows cryptographic proof that it has the permissions to make a transaction by using its private key to give a unique signature, proving that it is in fact the user orchestrating it. We are able to trace and follow every Bitcoin transaction because these cryptographic proofs are stored on the blockchain.

Smart contracts consist of code outlining the terms of a transaction and are more complex because they can involve multiple addresses interacting with each other. As a result, smart contracts need much more space to be stored on the blockchain and creating them on Bitcoin is expensive.

By using a combined key for each smart contract, Taproot will not only increase privacy by concealing the individual public keys of the users that are involved, but also significantly reduce the space required on a block when creating a smart contract. This will in turn reduce fees for smaller signatures, which has been an issue when the price of Bitcoin surges.

Miners show support for Taproot

Unlike the contended SegWit upgrade, Taproot has been met with widespread support. 

To decide on its activation, members of the community had agreed on a proposal called “Speedy Trial”. It outlined a three-month window for miners to lock in the upgrade if at least 90% of mined blocks within the signaling period showed a supportive signal.

Miners needed to add a “signal bit” (distinct, special data) to the blocks they mined within the set period, which was roughly every two-weeks. The 90% target was hit on June 12, two months before its August 11 deadline. The upgrade was officially locked in at block 687285 on the Bitcoin mining pool, Slush Pool.

The Taproot rollout

Taproot successfully activated in November 2021 and was also added to the Lightning Network, the second layer on Bitcoin’s blockchain that’s designed to allow cheaper and more efficient transactions between participating miners.

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