What is the Taproot Upgrade in Bitcoin: Everything you should know about it.

Since the activation of Segregated Witness (SegWit) in 2017, the Bitcoin Taproot update is the most significant upgrade. Similar to SegWit, the Taproot upgrade intends to increase network efficiency and privacy, but on a broader scale and with possibly a more significant impact anticipated over time. The upgrade to Bitcoin Taproot will also promote the usage of smart contracts, which may be used to do away with middlemen in transactions and allow the leading cryptocurrency to participate in decentralized financing (DeFi). Once a 90% consensus was reached by Bitcoin miners in June 2021, block 709,632 of the protocol saw the full activation of the Bitcoin Taproot update, which was then finalized in November 2021.

Who formulated the Taproot update? 

Since its deployment in 2017, Bitcoin Core developers have looked into ways to increase SegWit’s functionality. Greg Maxwell, one of the top developers of the cryptocurrency, originally put up the Taproot idea in 2018. The three Bitcoin Improvement Proposals (BIPs) that made up Taproot were written by Pieter Wuille. Developers Tim Ruffing, A.J. Townes, and Jonas Nick joined the project in 2020 while collaborating with Maxwell and Wuille on putting the update into practice. Unlike Bitcoin Cash, which is split into two distinct parallel blockchains and coins, Taproot is a soft fork of Bitcoin and is compatible with earlier versions of the program.

SegWit gained prominence for the significant effects it had on the Bitcoin cryptocurrency, which caused the network to split and gave rise to Bitcoin Cash. That improvement increased Bitcoin block size without sacrificing important characteristics like decentralization. Unlike a hard fork, this soft fork of the Taproot update is less contentious than SegWit. It received a lot of support from miners immediately away, in part because it made major, progressive code enhancements. While many Bitcoin miners have already upgraded to the most recent version of the software, other participants including exchanges, retailers, and normal node operators will gradually upgrade based on their priorities.

Despite widespread support, Taproot usage is predicted to increase steadily over time, much as the SegWit update. Over time, DeFi will likely notice the impact that smart contracts have, but it is anticipated to be substantial.

How does the Taproot help Bitcoin, and what is it?

The primary objective of the Taproot upgrade was to speed up, improve efficiency, and secure Bitcoin. This upgrade makes it possible to batch together various signatures and transactions, which speeds up and simplifies the verification process for transactions on the Bitcoin network. Prior to the Taproot, the typical procedure for Bitcoin suggests that each transaction be independently validated by checking a digital signature, which functions similarly to a user’s fingerprints, against a public key. But now, multi-signature wallets and other complicated signatures can now be collected and confirmed collectively rather than separately.

Implementing Schnorr signatures on the ECDS (Elliptic Curve Digital Signature) algorithm is the primary change that enables this transformation. The private key that controls a Bitcoin wallet is used by the ECDSA algorithm to establish a signature and confirm that the transaction is being carried out by the rightful owner. The network can now process more transactions by aggregating signatures, which speeds up and lowers the cost of the overall process while optimizing the block’s space savings. The scalability of Bitcoin will be significantly improved by the Taproot upgrade, which many see as removing one of the biggest barriers to its widespread adoption. By enabling Bitcoin to host smart contracts without worrying that numerous signatories and their complicated transactions would overload the system, The Taproot achieves an important milestone. The size of the information decreases, making single-signature transactions less data-intensive.

The Taproot upgrade components

The Taproot upgrade included three interconnected and simultaneous updates. This gives users the option to combine three related and scaleability-enhancing solutions. The submission procedure for proposals to alter the Bitcoin protocol or even to address bugs is predetermined. A BIP is utilized as a standard approach in the absence of a central authority, beginning with straightforward ideas that developers submit to the community. The proposal is posted to the Bitcoin Core GitHub repository of BIPs waiting for activation once it receives the necessary consideration from other developers. Three concurrent BIPs are part of the Taproot upgrade, as detailed below.

BIP 340 – Schnorr Signatures

ECDSA is replaced by Schnorr, which offers a digital signature system that is quicker, more secure, and less data-intensive.

BIP 341 – Taproot

Taproot provides a new method for Bitcoin transactions by giving consumers more privacy and flexibility. Additionally, it turns on Merklized Alternative Script Trees (MAST), which reduce transaction costs, use less memory, and increase the scalability of Bitcoin by condensing intricate Bitcoin transactions into a single hash.

BIP 342 – Tapscript

The scripting language used for Taproot script-path spends is called Tapscript. This update increases future upgrade flexibility and makes use of Schnorr’s efficiency.

Concluding Remarks

As a result of the lower footprint that smart contracts now have on the blockchain, the Taproot upgrade completely changes the utility of Bitcoin. Smart contracts are self-executing agreements based on a blockchain between two parties that can produce a secure transaction without the need for a middleman. Taproot’s approach to scalability problem-solving makes it possible for Bitcoin to host smart contracts on the base chain. In this approach, the leading cryptocurrency positions itself as a direct rival to Ethereum, which is a more well-known rival for smart contracts.

The majority of customers won’t even be aware that there was a technical upgrade because of the Taproot. Investors should pay heed to this occurrence, though, as the long-term implications could be profound for the leading cryptocurrency. The long-awaited answer to many of Bitcoin’s traditional issues is The Taproot. Bitcoin’s developers have always placed a high focus on addressing scalability, and Taproot offers the necessary tools to make Bitcoin quicker and more effective. We will be covering more on how this update has performed over the last year and how it impacts investor decision-making when it comes to BTC. Keep an eye on this space to learn more about the same.