What is Taproot? – A Major Upgrade for Bitcoin
The Taproot upgrade is of rather a technical nature but its implications are easily comprehensible by the average Bitcoin user. Taproot is a soft-fork upgrade, meaning the full nodes running the Bitcoin network have the option but not the obligation to update their software with the Taproot code. This is crucial because otherwise the network would split into two different networks (nodes with old code vs. nodes with updated code), as it was the case with Bitcoin Cash. Such splits, called hard forks, weaken the network and can lead to uncertainty among network participants and users. This is why there is the unwritten rule in the Bitcoin community that hard forks should be avoided at all costs, while soft forks should only be done if absolutely necessary and if a high degree of conviction is present within the community.
But what does Taproot do? In short, the implementation of Taproot by Bitcoin full nodes enables improved scalability, increases privacy, and favors enhanced smart-contract functions of the Bitcoin blockchain. This is made possible by the introduction of so-called Schnorr signatures, Merklized Abstract Syntax Trees (MAST), and Tabscript.
The expected benefits of the upgrade include:
- A singular Taproot output: The introduction of these new features allows for a new address type, which means that all Taproot Bitcoin transactions look similar whether a sender is making a simple payment, is using the Lightning network, or is performing a complex multi-sig transaction with multiple parties. Taproot consolidates all types of Bitcoin transactions into a singular Taproot output. This allows for more privacy in the network.
- Block-space savings: The new address type uses a more efficient signature algorithm that requires less block space on the blockchain, thus saving transaction fees for users. This is especially important for more complex transactions. Thanks to these improvements, larger and more complex operations become possible on Bitcoin, which were not feasible prior to Taproot.
- Improved Bitcoin programmability: Before Taproot, Bitcoin did have some native smart-contract capabilities. Transactions could be programmed to execute payments when certain conditions were met or missed. One of the most popular applications of Bitcoin smart contracts is the Lightning network. However, such contracts offer little privacy and are data-heavy. Taproot improves this by breaking up the execution of Bitcoin scripts, thus making Bitcoin contracts more viable.
It’s important to bear in mind though: The idea that Taproot will turn Bitcoin into a fully fledged smart-contracts blockchain is misplaced.
