Basically, another upgrade to improve the currency’s usability. Taproot is the biggest upgrade in Bitcoin’s network after the Segregated Witness, or “SegWit,” upgrade in July 2017 that addressed scalability issues.
Taproot holds the promise to improve many things for the network including privacy features and smart contract functions. These changes will lead to improved wallet functionality and reduced fees for complex transactions.
The Taproot upgrade for bitcoin would allow smart contracts to be run efficiently and cheaply. As of now, smart contracts are usually run on the Ethereum network because of the higher efficiency.
However, with the Taproot upgrade, Bitcoin has the potential to elevate itself and integrate with mainstream finance.
What is Taproot?
Taproot is a melting pot of various technical innovations throughout Bitcoin’s history into one upgrade. It was first proposed by Greg Maxwell in 2018.
Since then, the three Bitcoin Improvement Proposals (BIPs) that codified Taproot were written by Pieter Wuille, Tim Ruffing, A.J. Townes, and Jonas Nick, and merged into Bitcoin Core in Oct. 2020.
At the root of the upgrade are “Schnorr signatures.” Bitcoin has been using a cryptographic scheme ECDSA for its “digital signatures” where a user signs a transaction with their private key in order to approve sending it somewhere else.
Taproot upgrades to a different scheme called Schnorr. Every transaction using Taproot will now use this new digital signature scheme, adding new capabilities designed to boost the privacy, security, and scale of Bitcoin transactions.
In addition to being smaller and faster than ECDSA, Schnorr signatures have the added benefit of being “linear,” a combination that will boost Bitcoin’s transaction privacy and allow for more lightweight and complex “smart contracts” (an encoded contract with self-executing rules).
The taproot will have many positive repercussions for various projects across the ecosystem. For instance, multi-signature transactions, which require more than one out of a group of signers to sign a transaction, will be cheaper and will use fewer data.
How Will Taproot Benefit Bitcoin
Here is what you need to know:
- Better capacities for smart contracts. The Schnorr signatures introduced with Taproot can be used to allow Bitcoin users to execute more complex smart contracts than Bitcoin currently allows. This is something essential as it appears that the need for smart contracts is growing in the cryptocurrency world.
- Increased privacy. The Taproot update will increase privacy for certain types of transactions. Schnorr’s signatures will allow multi-signature transactions or transactions involving multiple addresses to appear as a simple and standard transaction to everyone. Multi-signature transactions are often used to develop smart contracts.
- Cheaper transactions. The final important benefit of Taproot is that Schnorr’s signatures reduce the data needed for multi-signature transactions, which are more complicated to process than standard transactions.
It will help in reducing the memory size of transactions. To shorten the amount of memory they take up in the blockchain.
This is done by doing a grouping together transactions that have the same sender. Instead of saving each transaction to the blockchain with the signature of the sender will multiple transactions stemming from the same sender be grouped together and only signed once.
This would make an estimated 25% more space available on the BTC blocks to store more and different transactions. It helps the efficiency of the network in its totality.
To give an example.
Let’s say I create a wallet between Jacob, Blessing, and Samuel. Jacob and Blessing are allowed to spend funds at any time together but Samuel is allowed to spend after Jan 1st, 2030.
Pre taproot every time Jacob and Blessing spent they would need to publish this contract plus their 2 signatures. With taproot, they can ask Samuel to sign also, and now only their combined signature needs to be published.
They save space on the chain and the fact Samuel may be inheriting a large chunk of money in 2030 is kept a secret from the world.
All transactions of where the funds themselves go are still in the open just the rules of the wallet are kept secret.