Bitcoin rolled out one of the biggest upgrades to its network since its inception in November 2021. Called Taproot, the upgrade simplified transaction processing and made them more efficient in speed and cost. The latest change in the cryptocurrency network ended in a “civil war” of sorts and resulted in the creation of Bitcoin Cash, a new cryptocurrency. However, the Taproot update was not controversial.
Here is a brief introduction to the Bitcoin Taproot upgrade.
- Taproot, the 2021 Bitcoin update, was one of the biggest.
- The Taproot update bundles multiple signatures and transactions together, making it easier and faster to verify transactions on the network.
- It also mixed single- and multi-signature transactions and made it difficult to identify transaction entries on the Bitcoin blockchain.
- Taproot also aimed to help scale the number of transactions occurring on the Bitcoin network.
What did the Taproot update do?
In a nutshell, the Taproot update brought together several signatures and batch transactions. Digital signatures are required on the Bitcoin network to verify transactions. They are generated using private keys and validated with public keys.
Before the implementation of Taproot, verification of transactions on the Bitcoin network was slow because each digital signature was validated with a public key. This method multiplied the amount of time required for complex multi-signature transactions that require multiple entries and signatures.
The Taproot implementation enabled signature aggregation. In simpler terms, this meant that multiple signatures could be grouped and validated. The benefit for multi-signature transactions (or transactions that require approval from multiple parties) was even more pronounced since the update condensed transactions containing many entries, such as those from multiple addresses on the Bitcoin network, into a single one.
The Taproot update also combined single-signature and multi-signature transactions into a single verification process. The update also had privacy implications because it made it difficult to distinguish between single-signature transactions and multi-signature transactions. Therefore, it became more difficult to distinguish the participants of a transaction on the public Bitcoin blockchain.
A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems to maintain a secure and decentralized record of transactions.
How did Taproot enable signature aggregation?
Bitcoin already uses the elliptic curve digital signature algorithm (ECDSA) to generate keys and verify transactions. The Taproot update introduced Schnorr signatures, which are more secure and easier to implement.
One of the properties of Schnorr signatures is linearity. Simply put, this property allows you to use a sum of public keys to sign a sum of signatures. Therefore, multiple Bitcoin transactions can be verified quickly in batches instead of evaluating one transaction at a time.
What did the implementation of Taproot mean for the Bitcoin network?
As mentioned above, the Taproot update simplified transaction processing, making it easier and faster to confirm transactions on the Bitcoin network. It also increased the number of transactions that could be processed and decreased the overall cost of transactions on the network because the size of transactions increased.
One could argue that the presence of a Layer 2 technology like Lightning Network is designed to achieve the same thing. However, transactions that occur on Layer 2 channels must still be verified on the Bitcoin network once a channel is closed. These batches of unconfirmed transactions can congest the Bitcoin network when they are sent for confirmation. The implementation of the Taproot update made the Bitcoin network more efficient in processing these transactions.
The Taproot update was also good for privacy because it made it harder to identify participants in a transaction on the public Bitcoin blockchain. It achieved this by disguising multi-signature transactions as single-signature transactions.
Finally, implementing Taproot was also a win for smart contracts on the Bitcoin blockchain. It opened the door to more innovative financial applications on the Bitcoin network. According to some, the Taproot update also meant that Bitcoin could be used in Decentralized Finance (DeFi) applications. Although the cryptocurrency blockchain has always had smart contract capability, as of November 2023 it has not yet been used to its full potential due to issues associated with scaling transactions. Implementing Taproot solved much of that problem.
How did the implementation of Taproot affect the Bitcoin cryptocurrency?
As Bitcoin grows and becomes more efficient at processing transactions, the chances of it becoming a more efficient means of transaction increase. In the past, bitcoin’s value as a store of value was tied to its utility. Therefore, it is possible that the value of bitcoin will increase along with the number of useful transactions on its network.
When Bitcoin reaches its supposed limit of 21 million, bitcoin mining reward income will decrease for miners. At that point, transaction fees will make up the majority of your income. This update helped bring that reality closer by shortening the size of transactions and increasing the speed with which they are processed on the Bitcoin network.
When was the Taproot update done?
Bitcoin’s Taproot upgrade went live in November 2021.
Who performed the Taproot update?
Taproot was created by the Bitocin community using Bitcoin Improvement Proposals (BIP) and peer review. The code was written by Pieter Wuille, Jonas Nick and Tim Ruffing.
What is a Taproot account?
A Taproot account was an account on cryptocurrency wallets that were compatible with the Taproot update.
The bottom line
Taproot’s upgrade to the Bitcoin blockchain was significant because it allowed the blockchain to process transactions more efficiently and address scalability issues. The update went live via a soft fork in November 2021.