Bitcoin Taproot Upgrade: A Comprehensive Guide in 2024. The most significant upgrade to Bitcoin after activating Segregated Witness (SegWit) in 2017 was the Bitcoin Taproot update. Like SegWit, the Taproot upgrade will increase network efficiency and privacy, but it will be implemented on a bigger scale and may have a more substantial influence in the long run. By removing intermediaries from transactions and paving the way for decentralized finance (DeFi), the latest Bitcoin Taproot upgrade will also promote the usage of smart contracts.
Bitcoin miners approved the upgrade of 90% on June 12, 2021. The Bitcoin Taproot upgrade date was November 14, 2021, at block 709,632, when the protocol was fully enabled as a soft fork. Before activation, node operators and miners have six months to upgrade to Bitcoin Core 21.1, incorporating Taproot. This article outlines how Bitcoin will benefit from Taproot’s most significant protocol modifications and how they were implemented.
Who Developed Taproot Bitcoin?
Since SegWit’s deployment in 2017, Bitcoin Core developers have looked into ways to increase its capability. In 2018, one of the top developers of the cryptocurrency, Greg Maxwell, initially proposed the Taproot project. Pieter Wuille authored three Bitcoin Improvement Proposals (BIPs) codifying Taproot. Along with Maxwell and Wuille, developers Jonas Nick, A.J. Townes, and Tim Ruffing were brought on board in 2020 to execute the overhaul. Unlike Bitcoin Cash, which split into two independent blockchains and cryptocurrencies, Taproot, a soft fork of Bitcoin, is compatible with earlier software versions and won’t require that.
The catastrophic consequences of SegWit on the cryptocurrency in 2017 caused the network to split and Bitcoin Cash to be born. With such an update, Bitcoin blocks might grow in size without sacrificing essential features like decentralization.
On the other hand, those who opposed SegWit were pushing for larger blocks. Because there was no longer universal agreement on the same protocol, a hard fork in the Bitcoin network was necessary, and two new cryptocurrencies—Bitcoin (BTC), $42,849, and Bitcoin Cash (BCH), $241—were born. Since it is not a hard fork, the Taproot upgrade avoids the controversy surrounding SegWit. Its substantial incremental improvements to the code contributed to its immediate and widespread popularity among miners.
Exchanges, merchants, and regular node operators will upgrade at their own pace, considering their priorities. In contrast, miners have already upgraded their systems to the current version of Bitcoin software. Like the SegWit upgrade, Taproot adoption is anticipated to increase gradually despite widespread support. There will be noticeable effects on DeFi from intelligent contracts over time, which are likely to be substantial.
Taproot: How Does it Help Bitcoin?
Improving Bitcoin’s speed, efficiency, and privacy is the end goal of the Taproot. Verifying transactions on the Bitcoin network is now easier and faster thanks to the update, which allows for batching several signatures and transactions.
How the Taproot Benefits Bitcoin
Digital signatures, similar to fingerprints, are validated against public keys as part of Bitcoin’s regular procedure before the Taproot. This ensures that transactions are verified individually. The latest version of Taproot allows for the consolidation and verification of numerous, complicated signatures, similar to multi-signature wallets, instead of each signature being confirmed separately. Implementing Schnorr signatures over the Elliptic Curve Digital Signature Algorithm (ECDSA) is the central feature that will permit this significant transformation. The ECDSA algorithm generates a signature using the private key that controls the wallet to ensure that only the authorized owner executes a Bitcoin transaction.
In terms of security, Schnorr signatures outperform ECDSA. The fact that they are linear means complicated transactions can be validated in batches rather than one by one. A more efficient and less complex approach is possible when several parties work together to generate a single signature valid for all their public keys. The network can execute more transactions faster and cheaply by aggregating signatures, maximizing the block’s space savings. The scalability of Bitcoin, which is seen by many as a significant barrier to Bitcoin’s widespread adoption, will be significantly enhanced by the Taproot upgrade.
Eliminating differences between transactions requiring multiple signatures and those requiring only one is another way the Taproot improves privacy. By storing the private data in this fashion, it becomes increasingly impossible to identify the inputs used by each participant in a transaction. With Taproot, Bitcoin can now host smart contracts without worrying that the system will become overwhelmed by the number of signatories and the complexity of their transactions. This is a significant step forward. A less data-intensive single-signature transaction reduces the information size.
Taproot Updates Three Times Simultaneously
The opportunity to merge three separate but related suggestions to increase Bitcoin’s scalability has arisen with the Taproot upgrade. Changing Bitcoin’s protocol or fixing bugs requires a specialized submission process. As a typical method, developers submit simple ideas to the community via a BIP when there is no central authority. Whenever other developers show interest in the proposal, it is added to the Bitcoin Core GitHub repository, where other BIPs await activation. Below, we will explain that the Taproot upgrade involves three concurrent BIPs.
BIP 340 – Schnorr Signatures
As an alternative to ECDSA, Schnorr offers a digital signature system that is quicker, safer, and uses less data.
BIP 341 – Taproot
Taproot presents a new method for Bitcoin transactions by improving user privacy and flexibility. Additionally, it enables Merklized Alternative Script Trees (MAST), a technique that enhances Bitcoin’s scalability, reduces transaction fees, and minimizes memory usage by condensing complex Bitcoin transactions into a single hash.
BIP 342 – Tapscript
For script-path spending in Taproot, the scripting language of choice is Tapscript. Using Schnorr’s efficiency, this version makes more leeway for future upgrades possible.
Bitcoin Taproot Smart Contracts
Because they take up less room on the blockchain and are thus cheaper, smart contracts are becoming increasingly crucial to Bitcoin’s utility, and this is all thanks to the Taproot improvement. An intermediary is no longer necessary to facilitate secure transactions thanks to smart contracts, agreements between two parties that execute themselves on the blockchain. Bitcoin may now host intelligent contracts on the base chain thanks to Taproot’s solution to scalability. In this manner, the leading cryptocurrency directly challenges Ethereum, the more popular brilliant contract contender.
Since intelligent contracts promise practical uses, this upgrade unlocks a floodgate of new possibilities for Bitcoin. Among the many valuable uses of smart contracts, decentralized finance (DeFi) stands out. Without a traditional bank or other intermediary, they make it possible for people to borrow or lend money safely. From registering ownership of an object to regularly paying rent, intelligent contracts can be used for any transaction and daily practical tasks.
Benefits for Bitcoin Taproot Users
As a technical improvement, Taproot will be invisible to most users. However, investors should watch this development since it could significantly affect the dominant cryptocurrency. Taproot ultimately solves Bitcoin’s conventional difficulties. The Taproot provides the means to speed up and improve Bitcoin, a massive step toward scalability, Bitcoin’s designers’ primary goal.
Fees fall as more entries are processed on the blockchain and complex transactions become smaller. Taproot will make the Lighting Network more efficient, user-friendly, economical, and secure for users and developers. This sets the technology settings to accelerate DeFi’s peer-to-peer financial services’ Bitcoin network implementation. Taproot boosts Bitcoin’s utility, allowing long-term entrepreneurs to seize new opportunities. Taproot should establish a more robust, efficient infrastructure to reassure investors of leading cryptocurrency fundamentals.
How the Bitcoin Taproot upgrade influenced prices for a long time is unknown. Bitcoin reached $64,000 on November 12, 2021, a record high before the Taproot upgrade. Bitcoin rose in price due to its legal tender status in El Salvador and its potential as an inflation hedge. According to analysts, Bitcoin’s value has increased substantially since the Taproot as trust in the network grows. However, the impact of the improvement on Bitcoin’s price is uncertain. The soft fork looks priced and will boost network efficiency rather than change prices.
Ethereum (ETH$2,286), Solana (SOL$97), and Cardano (ADA$0.496) may see more smart contract use, but Bitcoin is likely to dominate the market. Whether institutional and mainstream participants stick with existing platforms or switch to Bitcoin will be exciting to watch in the coming years.