Taproot, Bitcoin’s Privacy-Focused Upgrade, Activates This Weekend

The much anticipated Bitcoin upgrade, Taproot, will activate this weekend once block 709,632 is mined, opening the door for developers to integrate privacy, scalability and security features on the network.

Officially locked back in June with over 90% of all miners ‘signalling’ their support, the Bitcoin Core update 21.1 will be online this weekend. Once the patch is completed, developers will be able to enforce new rules, making it possible to use the new type of transaction.

Taproot is an upgrade with a cocktail of technical innovations. At the core of the upgrade are “Schnorr signatures”. Until now, bitcoin has been using a cryptographic scheme called CDFSA for “digital signatures”, whereby user sign transactions with their private keys in order to approve sending coins through the network.

With Taproot, this scheme is replaced by Schnorr. Essentially, every transaction using Taproot will use a new digital signature scheme, which adds features that increase privacy, security as well as transaction throughput (scalability).

Schnorr signatures are smaller and faster than ECDSA, and are also “linear”, making for a more robust privacy-oriented infrastructure. The update will allow for more complex ‘smart contracts’ too, in addition to several positive repercussions for projects in the ecosystem. For example, multi signature transactions, which require more than one out of a group of signers to sign a transaction, will be cheaper and will use less data

Taproot forms part of a bigger effort from developers who want to improve privacy of bitcoin, since its transaction history is very public. In fact, anyone can look up any transaction ever sent on Bitcoin using a public block explorer such as Mempool.space.

With Taproot, this is stil the case, but details of more complex transactions like smart contracts can be hidden. For instance, while Lightning Network transactions currently stand out, Taproot offers the possibility for them to be seen as any ordinary transaction, thus enhancing privacy features.

Another issue Taproot addresses is Bitcoin’s limited transaction space. Developers cannot just increase the limit as this would have a negative effect on decentralisation. As such, developers must make use of the currently available block space more efficiently.

Since Schnorr signatures are used to combine multiple signatures into one, they reduce the amount of data on the blockchain, thereby increasing throughput and network scalability. This data size reduction could boost scalability of MuSig2, for example, a scheme developed by Adam Back’s Blockstream research group which requires several signatures for one transaction.