What is Taproot Bitcoin? How does Bitcoin Taproot upgrade work? Taproot, launched in November 2021, is the most important Bitcoin update since 2017. This update has led to a hard fork, splitting the Bitcoin blockchain in two. Although Taproot is hardly controversial, it is important to understand how it affects the largest blockchain network.

What is Taproot Bitcoin?

Taproot is a soft fork that enhances Bitcoin scripts to promote privacy, efficiency and the ability of the network to execute smart contracts. It is considered the most important Bitcoin improvement since SegWit in 2017.

Taproot update consists of three independent Bitcoin Improvement Proposals (BIPs), namely Taproot, Tapscript and their core, namely the new Schnorr signature system. Taproot aims to provide Bitcoin users with multiple advantages, including increasing transaction privacy and reducing transaction costs.

It will also allow Bitcoin to conduct more complex transactions, and may expand its use cases to compete with Ethereum, especially in terms of smart contract functions and network support for decentralized finance (DeFi) and irreplaceable tokens (NFT).

Taproot's idea was first disclosed by Greg Maxwell, the core developer of Bitcoin, in January 2018. After Pieter Wuille's pull request, Taproot was added to the Bitcoin Core Library in October 2020. The node operator must accept the new consensus rules of Taproot to fully implement the update. It was finally recognized by 90% of miners and triggered on block 709632 on November 14, 2021.

How does Bitcoin Taproot upgrade work?

BIP340 - Schnorr Signature

BIP340 - Schnorr signature technology provides a more secure, universal and compact encryption signature form. It also enables multi signature transactions (in which multiple parties approve a single transaction) and smart contracts (in which a transaction can only be executed if a predetermined condition is met) to submit the same amount of data to the Bitcoin blockchain as a standard, single signature transaction.

Schnorr signature is used to save only one aggregate public key and signature, not the public key and signature of each participant. Observers cannot distinguish whether a transaction has a single or multiple endorsers, resulting in a smaller blockchain load.

It is worth noting that Schnorr signature is backward compatible with elliptic curve digital signature technology, which is the encryption algorithm (ECDSA) used by Bitcoin since its creation. This allows service providers such as exchanges, custodians and wallets to voluntarily upgrade over time.

BIP341 -- Primary Root

BIP341 – Taproot upgrades SegWit's privacy improvement based on the latest Bitcoin, and implements Merklized Alternative Script Trees (MAST), which only allows the execution conditions of smart contract transactions to be submitted to the blockchain, rather than complete details of all other possible results.

Merkle trees are often used in cryptography to confirm the existence of data in a set without disclosing the complete set. By only disclosing the fact of the transaction, Taproot provides Bitcoin users with more privacy. Those who audit the blockchain will not be able to access the unexecuted transaction terms or results, which may include sensitive private information, such as the wallet type.

Since the unexecuted transaction information is no longer stored on the blockchain, MAST should also be able to improve scalability, transaction throughput and efficiency.

BIP342—Tapscript

BIP342 – Tapscript has modified the scripting language used to write Bitcoin transaction parameters to accept Schnorr signature and Taprot technology for those who choose to upgrade. Tapscript will also make it easier to develop future Bitcoin improvements by simplifying the introduction of new operation codes (transaction instructions).

What are the upgrade advantages of Bitcoin Taproot?

As we said earlier, Taproot provides significant privacy enhancements for Bitcoin and extends its use cases? Other potential benefits include: improving network scalability by reducing the amount of data that must be sent and stored on the blockchain; Increase the number of transactions in each block (TPS rate); Reduce transaction costs.

Another advantage of Taproot is that signatures will no longer be easily forged, which is a recognized security issue on Bitcoin networks. The extensibility of signature indicates that it is theoretically feasible to modify the signature of the transaction before the transaction is verified.

In this way, the attack will make the transaction look as if it never happened. This makes Bitcoin vulnerable to the dreaded double spending problem, which may damage the integrity of the distributed ledger.

Importance of Bitcoin Master Root Upgrade

Taproot is probably the most important Bitcoin protocol improvement to date. In addition, we know that Taproot enhances the anonymity of Bitcoin. But why is this essential? The Bitcoin network is pseudonymous, which means that network users do not need to identify themselves in order to interact with the network.

However, every online transaction is recorded in Bitcoin's public ledger, so it can be tracked immediately. Therefore, the network is not anonymous. Once the person associated with the Bitcoin wallet address is identified, any transaction using the wallet may be attributed to the corresponding person.

In addition, before Taproot, certain types of transactions, especially smart contract transactions such as multiple signatures, can be immediately distinguished from "basic" transactions. Therefore, blockchain analysis companies such as Chainalysis, which have excellent monitoring technology, can theoretically not only identify the person behind the wallet, but also determine the type of transaction conducted by individuals.

The anonymity mainly depends on the owner of the wallet address. However, Taproot code patches are required to make it impossible to detect various transaction types on the blockchain. Taproot allows various smart contract transactions to look like "simple" transactions on the blockchain.

By hiding the true nature of transactions, Taproot enables smart contract transactions to disguise themselves as normal transactions in most simple transactions. This enhances the privacy of the network.

What does Bitcoin Network mean?

As mentioned earlier, Taproot updates improve transaction processing, making it easier and faster to complete transactions on the Bitcoin network. It also increases the number of transactions that can be processed, and reduces the total cost of online transactions due to the increase in transaction size.

One might argue that Layer 2 technologies, such as Lightning Networks, aim to achieve the same goal. However, after the channel is closed, Layer 2 transactions must still be verified on the Bitcoin network. 10 These unconfirmed trading groups may block the Bitcoin network when sending confirmations. The implementation of Taproot update may improve the efficiency of Bitcoin network in processing these transactions.

In addition, Taproot's deployment on the Bitcoin blockchain is a victory for smart contracts. It may facilitate the development of more innovative financial applications on the Bitcoin network. According to others, the Taproot update also indicates that Bitcoin may enter Decentralized Finance (DeFi).

Although the blockchain of cryptocurrency always has the ability to execute smart contracts, its full potential has never been realized due to scalability problems. The Taproot implementation solves this problem.

Who created Taproot Bitcoin?

Nick, together with AJ Towns, Tim Ruffing and Pieter Wuille, drafted three Bitcoin Improvement Proposals (BIPs), which constitute Taproot, the most important Bitcoin update in the past four years.

How does the main root play its role?

With Taproot, all parties involved in the transaction can cooperate, making complex transactions look like ordinary people to people transactions. They will do this by merging their public key to generate a new public key and their signature to generate a new signature.

In general, Taproot is a long-awaited and widely recognized Bitcoin update. When combined with Schnorr signature, you can see considerable enhancement in privacy, scalability, security, etc. These enhancements may help increase people's interest in Lightning Networks and promote multi signature as an industry standard.