Unlike the name implies, the Bitcoin Taproot upgrade is no turnip, but an update that promises to keep bits of transaction information buried deep underground.
The upgrade is on track to becoming the largest bitcoin improvement proposal (BIP) since 2017. If memory serves, this led to a massive hard fork of the network in which one blockchain split into two separate ones. Thankfully, Taproot is not that contentious and 97% of bitcoin miners have already signalled readiness for Taproot deployment.
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What is Taproot?
Taproot is an upgrade to the Bitcoin protocol that will mask smart contract functions in one public key and signature. This will make smart contracts more efficient and private.
As you may know, the bitcoin blockchain is made of strings of computer code connected to a script. These computer commands use a private key to provide a signature, proving that the sender is able to spend the bitcoin.
However, in order to perform more complex transactions (smart contracts), multiple signatures are required before coins can be sent through the network, mandating what is known as a ‘timelock’ period. This process adds a lot of data on the blockchain, while also exposing potentially sensitive information about the parties involved in the transaction. Consequently, blockchain tracking firms like Chainalysis and other government agencies can more readily track these types of transactions (which is undesirable).
With Taproot, all parties in a transaction can cooperate to make complex transactions look like normal, seamless peer-to-peer transactions. This is done by combining public keys to create a new public key, as well as creating a new signature using a device called Schnorr signatures.
Who benefits?
For these types of complex transactions, Taproot enhances privacy while reducing the amount of data needed to make them, lowering the growing transaction costs that come with Bitcoin’s growing popularity.
Furthermore, the privacy benefit will be useful for applications that use time-locked contracts, like CoinSwap, which mixes bitcoin transactions in order to obfuscate the coins’ origin and destination. The same thing applies to the Lightning Network, a layer two solution that bundles transactions off-chain. Using Taproot, these apps become more private.
In practice, it’s not dissimilar from physical cash transactions (minus the paper).
As its originator wrote, “I believe this construction will allow the largest possible anonymity set for fixed party smart contracts by making them look like the simplest possible payments.”
Who’s idea was it?
In 2018, Gregory Maxwell proposed the Taproot upgrade. Maxwell is a Bitcoin Core developer, which is an open-source software created by Adam Back‘s Blockstream, where Maxwell was once CTO. Bitcoin Core is the main software client for Bitcoin, allowing individuals to interact with the blockchain. By downloading Bitcoin Core, anyone can take part in validating transactions on the Bitcoin blockchain.
All in all, Taproot is a major improvement for bitcoin and makes the blockchain all the more attractive for both individuals and companies seeking to use it.
Once the process is complete, the Taproot soft fork will activate in November.
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