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What is Taproot and How Will it Benefit Bitcoin?

Updated on :  

08 min read.

Bitcoin is the world’s first and most popular cryptocurrency. However, like all other cryptos, it has had its ups and downs. Over the years, several issues have hampered the user experience of Bitcoin holders, and an upgrade was the need of the hour. 

Thus, on 14 November 2021, the Taproot upgrade was implemented on block 709,632 of the Bitcoin network. 

Here’s more on the Taproot upgrade.

What is Taproot?

Taproot is the most significant Bitcoin upgrade after its 2017 SegWit upgrade. It aims to solve the problems of privacy, slow transaction speed, and security of the Bitcoin network. 

As Bitcoin is a public blockchain, all its transactions are publicly visible. Anyone on this blockchain who knows your Bitcoin address can view your transaction history. While you can try to increase your anonymity on this network by using CoinJoins and coin mixing, it does not make Bitcoin a private currency. Taproot aims to make your transactions anonymous on this ecosystem, thereby increasing your privacy and security. 

Another major issue with this cryptocurrency was its speed. Initially, Bitcoin had the speed to carry out seven transactions per second. But, as its popularity grew, so did its users, and its transaction speed slowed. Transaction fees also increased, with a surge in the value of the digital currency. 

With high fees and low transaction speed degrading the user experience of Bitcoin users, the Segregated Witness (SegWit) upgrade was implemented in 2017. It aimed to fit more transactions in one block and speed up Bitcoin’s transaction process. However, its high transaction fees still prevailed. Taproot aimed to solve these problems by implementing several measures in its upgrade. 

Features of Taproot

The Taproot upgrade implements three major Bitcoin Improvement Proposals (BIPs) that aim to give its users the benefit of lower transaction fees, improved speeds, and higher security. 

Its features are:

Schnorr Signatures (BIP340)

Schnorr Signatures increase the speed and security of validating transactions on the Bitcoin network. Primarily known for its simplicity and efficiency in generating short signatures, its key benefit lies in taking multiple keys inside a complex Bitcoin transaction and producing a single unique signature. This means that a single Schnorr signature can aggregate signatures from multiple parties. This will help significantly reduce transaction time on the Bitcoin network.

Due to a unique feature of the Taproot upgrade, it also enables your transactions to stay anonymous to a certain degree. 

If you are using Taproot, you can transact using a Lightning Network channel, a sophisticated smart contract or a peer-to-peer transaction. A person monitoring your transactions will appear to them only as a peer-to-peer transaction. 

However, the wallet addresses of both the initial sender and the recipient will be visible. 

Tapscript (BIP342)

Tapscript is a coding language upgrade to the Bitcoin script that helps the other BIPs of this upgrade to function. The opcode OP_CHECKSIGADD takes advantage of the aggregation feature of Schnorr Signatures and thus allows more space in the blocks. This coding language will bring more flexibility to this ecosystem. It can add new features like creating and supporting smart contracts on the Bitcoin network.  

Taproot (BIP341)

Using the Merkelized Alternative Script Tree (MAST), the BIP341 increases the amount of transaction data stored on a Bitcoin blockchain. 

Previously, to conduct a transaction, you had to provide a signature. This helped prove that you are the actual owner of your crypto asset. Investors could also use features like timelock releases, multisignature (multisig), and many more. 

These features made transactions complex and hence more difficult to track. However, these processes required multiple inputs and signatures to verify. Hence, a large amount of your transaction information is automatically revealed on the blockchain. This caused a security risk, and the huge amount of data on the blockchain triggered a lag. Hence, transaction speeds dropped as the volume of data increased. 

With MAST, the amount of verification and scripts can be reduced as one MAST transaction would be able to represent multiple scripts. When a complex Bitcoin transaction goes to MAST, it only allows the implementation of the executed conditions on the blockchain. This process reduces the volume of data stored on the blockchain and, as a result, increases transaction speed and enhances users’ privacy. 

How will Taproot benefit Bitcoin?

The Taproot upgrade will have the following benefits for Bitcoin users:

  • Lower transaction fees
  • Increased transaction speed 
  • Lower risk of transaction data exposure
  • Implementation of Pay-to-Taproot (P2TR)
  • Possibility of Bitcoin covering Non-fungible tokens (NFTs) and Decentralised Finance (DeFi) markets in the future due to its upgraded script 

The Taproot upgrade can potentially change the course of Bitcoin in future. Whether or not you are an investor of Bitcoin, staying informed of these upgrades can help shape your future crypto investment strategy.