All about Taproot: Bitcoin's next upgrade

The Bitcoin Taproot soft fork intends to optimize smart contract functionality, privacy, and scalability. The upgrade will introduce a new address type, enabling bitcoin spending to look similar irrespective of whether the transaction involves using the Lightning Network, a simple payment, or a complex multi-signature transaction.

Additionally, Taproot addresses will minimize transaction fees, thus allowing users to save more for complex transactions compared to past address types. By simplifying transactions and reducing the transaction size, Taproot will also facilitate larger and more complex activities to be operated on the Bitcoin blockchain.

Taproot will empower the Lightning Network to operate to its full potential as a perfect scaling technology for Bitcoin. Presently, the second layer protocol can be identified in progress in the Bitcoin blockchain, minimizing the asset's fungibility. Fungibility is essential for a monetary good since it seems to equalize the coins. If transaction outputs were unequal, they could discriminate the receiver, thus prohibiting users from using their Bitcoin for payments in particular conditions.

Moreover, complex wallets, the Lightning Network, and contracts will experience greater efficiency and reduced transaction fees, further facilitating the usage of BTC as a medium of exchange. Taproot will be powered by Schnorr signatures, which will promote complex transactions across Taproot-supporting wallets, yet at the same cost as simple ones. Besides, this reduction of fees and enhanced capabilities and flexibility for smart contracts will support complex setups that were previously not possible in Bitcoin.

But to understand the reasons for the implementation of Taproot upgrade in Bitcoin, one needs to comprehend how Bitcoin transactions operate and the number of upgrades that have been developed this far.

A recap of how Bitcoin transactions operate

Bitcoin transactions operate based on equal inputs and outputs, to ensure coins are not wasted. For instance, if you want to send a peer 5 BTC, you would require to pick exactly 5 Bitcoin, otherwise, the transaction wouldn't go through, or you'd incur high fees.

What's important in such a scenario is to understand the interaction of coins as inputs and outputs. When you spend, you are moving a transaction output to another user. But to achieve that, you need to input it into a new transaction, and the other user will get the Bitcoin as another transaction output.

Thus, the idea of a wallet is an abstraction meant to make things easier to understand and appreciate all the transaction outputs you have. This concept is referred to as transaction outputs [UTXOs).

Enhancing the Bitcoin transaction structure

The history of transactions on bitcoin has transformed since the launch of the network. Generally, the UTXO model relies on contracts or scripts established using the Bitcoin Script "programming" language. We have put "programming" in quotation marks since Bitcoin's scripting language can be seen as a verification language than one that offers computation commands.

Simply put, Bitcoin scripting is a form of specifying conditions for disbursing a UTXO.

Bitcoin Script often has three major challenges that hinder how its improvements are processed: Space efficiency, privacy, and computational efficiency. Basically, upgrading one of these results into empowering the other two.

For example, seeking to disclose less concerning a transaction and thus enhancing would involve submitting a fraction of data. This would minimize space requirements for the transaction, thus making it easier for verification.

The community has been developing how Bitcoin transactions operate by systematically creating new addresses or script types. In the long run, these changes have improved transactional privacy, making the transfer of assets easier, and enhancing the validation process for transactions.

The changes have enabled users to experience greater flexibility when establishing scripts that improve the resilience of their savings, thus transferring funds around more privately and efficiently, which helps to facilitate financial sovereignty. Recently, technical tools have been developed to adopt these activities to ensure greater adoption of best practices.

One of these tools includes the multisignature addresses, which previously had to be processed manually with Bitcoin Script. Currently, they are established effortlessly using a laptop or with a smartphone.

Lightning is another tool used for small and constant payments. Lightning is a Layer 2 scaling solution that is now available in mobile apps and enables users to transact once-unfeasible amounts of Bitcoin with each other promptly.

Taproot is arguably the latest upgrade to the Bitcoin protocol and the most essential one to date. Empowered by Schnorr signatures, MAST, and Tapscript, Taproot is a natural evolution of how Bitcoin transactions function. It seeks to improve privacy and flexibility without compromising security.

In the early days of Bitcoin, under the legacy addresses, the user processing a transaction had to worry about the receiver's wallet policy concerning its script. This scenario was not only unfeasible but represented a major privacy challenge. The contract had to be disclosed when the transaction was processed for anyone to observe, thus compromising the receiver's privacy.

However, with the introduction of pay to script hash (P2SH), Bitcoin improved that dynamic, and transactions could be sent to the hash of the contract rather than the contract itself. As such, a contract wouldn't be exposed until the output was utilized, and outputs became uniform, using a hash.

Not only did Pay-to-Script-Hash improve privacy in Bitcoin by making all outputs look identical, but it also minimized the output size, thus enhancing efficiency.

Still, the contract had to be exposed when spending, thus revealing and all the spending conditions. The two setbacks with this strategy are efficiency and privacy since any observer could see the various spending conditions, thus learning much about the spender's privacy. The blockchain would be overwhelmed with a large script with redundant logic.

The Taproot upgrade enhances this logic by initiating Merklelized Abstract Syntax Trees (MAST), a model that enables Bitcoin to achieve the objective of only exposing the contract's particular spending condition that was utilized.

Complex Taproot spending has two main possibilities: a fallback, specific condition, or a consensual, mutually-agreed condition. For example, if a multisignature address owned by many users wants to spend some assets programmatically, they could create one spending condition in that all agree to spend the funds or fallback states should they fail to reach a consensus.

If a unanimous condition is used, Taproot enables it to be converted into a single signature. Thus, the Bitcoin network wouldn't even recognize any contract had been utilized, thus enhancing the privacy of all of the users of the multisignature address.

Still, should the users fail to reach a mutual consensus and one party utilizes the funds using any of the fallback processes, Taproot only discloses that particular process. As the launch of P2SH enhanced the receiver's privacy by allowing all outputs to look similar, using a hash, Taproot will improve the sender's privacy by regulating the amount of data shared to the network.

Even if a user doesn't use complex wallet functionality such as Lightning or multisignature, enhancing their privacy also improves other users' privacy, since it makes chain surveillance challenging and improves the broader Bitcoin network anonymity.

The significance of Taproot upgrade for average Bitcoin users

By making transactions more efficient, more private, and cheaper, the adoption of Taproot will introduce extra functionality on the Bitcoin network. As nodes update and users start utilizing Taproot addresses, it will become more challenging for blockchain spectators to observe and distinguish between senders and receivers.

Taproot will allow UTXOs to be treated more equally, while the broader Bitcoin network will become a more vigorous settlement network that allows complex functionality to be established on top.

Sidechains and Layer 2 protocols will be enhanced to create and leverage even more complicated smart contracts for coordinating assets on the base layer. Although end-users might not create these themselves, they are set to benefit from more special functionalities in the broader Bitcoin ecosystem.

Also, even though some decentralized finance applications and use cases are continuously being implemented on Bitcoin, the broader smart contract capabilities and flexibility introduced by the Taproot upgrade can support even more use cases to be implemented and more sophisticated capabilities to be deployed while leveraging the improved security assurances of the Bitcoin network.

Since Bitcoin functions as actual money, long-term uses of decentralized finance can only be created on top of it. Novelty networks including Ethereum don't have the monetary qualities of the Bitcoin base layer and its robustness and security. This is one of the reasons why most applications created on them have failed to accomplish their value proposition for the long haul.

By patiently upgrading the foundations for an antifragile, distributed, uncensorable, and efficient monetary network throughout its lifetime, Bitcoin is about to enjoy authentic long-term functionality and development through a layered model.

The Taproot upgrade, which also features Transcript, MAST, and Schnorr, relies on that foundation by enhancing the privacy and security and privacy of the base layer and supporting more sophisticated applications to be established on top of it.

Greater flexibility of the smart contract capabilities of Bitcoin introduces a new era of unimaginable possibilities, allowing broader use cases to be executed on the best monetary network in history.

In the long run, upgrades such as Lightning and Taproot might efficiently render altcoins unnecessary and redundant.

Overall impact

Miners across the world recently approved Bitcoin's Taproot upgrade. This is the crypto asset's first upgrade in four years and has received a consensus from many stakeholders.

Many experts are convinced that the upgrade could be a game-changer for the world's leading cryptocurrency due to the overwhelming support from miners.

CEO and co-founder of Unocoin, Sathvik Vishwanath, explains that this upgrade has is anticipated to introduce improved transparency and privacy in transactions. Sathvik further explains that the upgrade will help to add smart contracts capability to the bitcoin blockchain network.

Taproot will help users create digital signatures using Schorr signatures rather than the network's current elliptic curve digital signature algorithm (ECDSA).

Concerning data and processing, Schnorr signatures are faster and tinier than ECDSA signatures. The new Schnorr-based smart contracts can be enhanced for tasks not applicable in ECDSA signatures.

These variations will make Taproot boost transaction privacy and facilitate more complex and lightweight "smart contracts" with self-executing regulations.

Taproot also brings coding and tooling and coding improvements which will be a benefit to developers. Frequent Bitcoin users also benefit from the performance, privacy, and usability improvements to multisignature technology, scaling tech, and privacy software.

One of the most critical features of the Schnorr multi-sig upgrade includes the "souped-up signatures" that assist the user in applying smart contracts on the Bitcoin blockchain.

In essence, smart contracts are bits of self-executing code that can promote a diverse range of transactions. It also enables automation, thus facilitating more complicated financial applications to be created in the Bitcoin network.

According to Fred Thiel, CEO of crypto mining company Marathon Digital Holdings, the hype concerning Taproot is mainly because of its smart contract compatibility characteristic. Fred argues that the smart contract is the main driver of change on the Ethereum network since it offers users the chance to create businesses and applications on the blockchain.

What is the future of Bitcoin?

As the Bitcoin blockchain continues to embrace the use of smart contracts, the global DeFi market is also expected to improve. Still, Ethereum commands the DeFi space, and thus, Bitcoin's upgrade will help level the playing field.

Expected to be launched in November 2021, Taproot can introduce an enhanced network efficiency and higher levels of privacy for transactions. These developments may lead to an "all-time high" price that could be above $100,000.

Taproot will make Bitcoin better since it can facilitate substantial institutional adoption to the network due to multisig transactions.

The Taproot upgrade will improve the network's functionality and eventually expand its market, which is good for its valuation and prospects. Taproot will also make bitcoin develop into a great store of value, offering excellent returns for speculators. The upgrade also represents users with the chance to get in early on life-changing technology investment.

Taproot will improve Bitcoin's usability and enhance its value and market share. The Taproot upgrade will allow smart contracts to function cheaply and efficiently. The promotion also has the potential to elevate the network and incorporate mainstream finance.

BitMEX now supports transfers to Taproot-enabled Bitcoin addresses

BitMEX has introduced access for Taproot wallets. As Taproot use increases, users will benefit from enhanced privacy, lower transactions costs, and more versatile smart contracts.

by iGaming.org

On November 14, 2021, at block 709,632, Taproot was activated on the Bitcoin protocol. The Taproot upgrade was a soft fork to the Bitcoin network, to extend the versatility of Bitcoin's scripting capabilities while improving transaction privacy and efficiency. The upgrade introduced a new output type called Pay to Taproot (P2TR), which uses the new Bech32m address format to make Bitcoin spending seem the same whether it's a Lightning Network transaction, a simple transaction, or a multisig transaction.

Bech32m varies from its forerunner, Bech32, in that it replaces the "0x01" constant in the checksum function with "0x2bc830a3," according to Bitcoin Optech newsletter volume 154.

"As of today, BitMEX supports withdrawals to Bech32m Bitcoin addresses. The first BitMEX client withdrawal to such an address occurred earlier today."

"BitMEX is proud to use the latest Bitcoin technology, to provide better features and lower fees for our users."

Bech32m varies from its forerunner, Bech32, in that it replaces the "0x01" constant in the checksum function with "0x2bc830a3," according to Bitcoin Optech newsletter volume 154.

"BitMEX is happy to leverage the latest Bitcoin technology to deliver better services and reduced fees for our users."

The more complicated the transaction requirements are, the more surcharges the user can save by using Taproot since the updated address lets each transaction appear to be a normal, specific payment. The update also makes it possible to run larger and more complicated operations on Bitcoin that were previously inaccessible or almost impractical.

Since most of the possibilities unlocked by Taproot can only be realized once a significant portion of the network uses the upgrade, BitMEX made a step in the right direction by enabling the latest Bitcoin functionality to its users.