What is the Bitcoin Taproot upgrade?

The Taproot upgrade marked an interesting chapter in Bitcoin’s history when it launched in November 2021. One upgrade the industry is starting to witness more and more of is the network's smart contract capabilities. Taproot is designed to meet the growing demands of Bitcoin users while staying true to its decentralized roots.

Let’s go back in time and explore what the Taproot upgrade contributed to the Bitcoin network.

TL;DR

• Taproot makes complex Bitcoin transactions look like standard ones, providing more privacy for users.

• Taproot cuts transaction sizes and costs by introducing Schnorr signatures.

• The upgrade allows more scalable, efficient smart contracts on Bitcoin, opening doors for DeFi projects.

• In 2018, a proposal was made for Taproot. In 2021, it was launched. Taproot improves Bitcoin’s privacy and scalability.

• The Taproot Assets protocol lets you issue and transfer tokenized assets on Bitcoin without blockchain congestion.

What is the Taproot upgrade?

The Taproot upgrade went live in November 2021, bringing a massive improvement to the network since Bitcoin’s launch. But what does the upgrade change exactly? Put simply, Taproot helps improve the privacy of Bitcoin transactions while keeping the network secure and decentralized.

Before Taproot, if you had a more complicated transaction (like a multi-signature, where several people need to approve a transaction) it’d be highly visible and therefore more susceptible to privacy risks. With Taproot, it’s like a chameleon blending in with other transactions.

The upgrade also makes the Bitcoin network more scalable. It uses Schnorr signatures, where multiple keys can be combined into a single signature, which saves space. Less data means lower transaction fees, which is great news for the community — they won’t be breaking their bank over gas fees.

Taproot also plays a role in helping improve smart contracts on Bitcoin. Developers can create automatic agreements without using too much space or making things complex. The Taproot upgrade helps Bitcoin do more, with less hassle and complexity. It’s a win-win for privacy and scalability.

Why was Taproot needed?

Before the Taproot upgrade, Bitcoin experienced some growing pains. As the Bitcoin network became more popular, cracks were starting to show around privacy, efficiency, and flexibility.

Why was Taproot needed? Let’s explore.

Before Taproot, privacy concerns were a big problem. If you made a complicated transaction, such as one requiring multi-signature, it was easy to see on the blockchain. Taproot helps make even the most complicated transactions blend in with standard ones.

Bitcoin’s original design wasn’t built for large-scale use, and as it grew, transaction fees started to rise. Meanwhile, each transaction took up a lot of space on the blockchain, which meant more congestion and higher fees. Taproot helped by making transactions smaller and simpler, thanks to Schnorr signatures. Imagine trying to fit a big, bulky item, into a tiny bag. It’s near impossible. Taproot, though, is like vacuum-packing that item so it fits perfectly.

Another reason for the upgrade was to make room for the ability to create flexible smart contracts on Bitcoin. Ethereum has been the leader when it comes to smart contracts. Taproot makes smart contracts more private on Bitcoin. This has opened the door to new possibilities, with DeFi projects being built right on the Bitcoin network.

To sum up, Taproot was designed to solve Bitcoin’s scalability issues, boost privacy, and give it more power to handle complex transactions — making the network faster, cheaper, and more secure.

What's the history behind the Taproot upgrade?

The Taproot upgrade kicked off in 2018, when Gregory Maxwell, a prominent Bitcoin developer, proposed the changes that would follow. Maxwell’s vision was to improve Bitcoin’s functionality and privacy without compromising its security.

After the original proposal, Taproot underwent discussions and evaluations within the Bitcoin community. It wasn’t a quick decision — developers and miners had to reach a consensus, making sure everyone was on the same page. This is a collaborative process in the crypto space, where change can have significant implications.

Fast forward to November 2021, and after debating and anticipation, Taproot was finally activated. This was a milestone for Bitcoin as it introduced a soft fork. Think of a soft fork like updating your phone’s operating system. It’s designed to be backward-compatible, meaning anyone using the old version won’t face any issues. Everything can still operate smoothly alongside the new features.

The Taproot activation signified an important upgrade to the Bitcoin network, making Bitcoin more versatile while respecting its core values.

What changes did Taproot bring to Bitcoin?

The Taproot upgrade has improved the overall functionality of Bitcoin. Here's a breakdown of what’s changed.

The Taproot Asset Protocol (TAP)

Lightning Labs' Taproot Asset Protocol (TAP) allows you to issue and transfer tokenized assets directly on the Bitcoin network. TAP has opened the door for further DeFi growth, enabling the creation and management of digital assets all within the secure framework of Bitcoin.

When BRC-20 tokens launched, concerns were raised about network congestion. However, with TAP, the protocol operates offchain to avoid blockchain congestion. This allows unlimited assets to be minted and moved in a single onchain transaction.

Improved privacy

Taproot conceals the complexity of transactions (like multi-sig), making them look like standard ones. This boosts Bitcoin’s privacy, making sure that complex transactions don’t stand out while maintaining a clean appearance across the network.

Lower transaction fees

By using Schnorr signatures, Taproot allows multiple signatures to be combined into one, reducing the size of transactions. This leads to more efficient use of blockchain space and, as a result, lower transaction fees. You can send transactions at reduced costs, especially when dealing with more complex setups.

Enhanced smart contract functionality

Taproot allows for more flexible and efficient smart contracts on Bitcoin. Bitcoin wasn’t originally created for complex smart contracts. Taproot makes it easier to use such contracts without slowing down the network or disturbing Bitcoin’s functionality.

The final word

The Taproot upgrade marked a leap forward for Bitcoin, offering enhanced privacy, reduced transaction fees, and better scalability. It’s like giving Bitcoin a powerful toolkit to do more while staying lean and structured.

By making complex transactions look like standard ones and using Schnorr signatures, Taproot simplifies the network’s workload. Its support for more advanced smart contracts opens up a world of possibilities, particularly in DeFi.