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Taproot is an update to Bitcoin on November 14, 2021. The Schnorr scheme and Taproot are the most anticipated technological updates to Bitcoin since the introduction of SegWit. Taproot's goal is to change how Bitcoin scripts work to improve privacy, scalability, and security. This and much more will be possible thanks to the joint implementation of Taproot and an update called the Schnorr circuit.

It's no secret that privacy, scalability and security are some of the main concerns of cryptocurrencies. And although Bitcoin is the most popular of them, this network has yet to solve them. This is why we plan to introduce Taproot.

Introduction

No matter what ups and downs Bitcoin goes through, it still remains an anchor that provides stability to the community. Despite a number of problems that have arisen over the years of its existence, such as the hacking of the Mt. Gox or network hard forks, Bitcoin continues to enjoy the support of crypto enthusiasts.

However, some disadvantages of Bitcoin cannot be ignored, and the most important one is related to security. Since Bitcoin is a public blockchain, anyone can track the network's transactions, which has caused concern for some participants.

To increase your privacy, you can use Bitcoin mixers and CoinJoins technology, however, this will not make Bitcoin itself an anonymous cryptocurrency. And although Taproot cannot control this either, its implementation can increase the anonymity of the network.

The Taproot update is considered an important step towards addressing the issue of insufficient network privacy and other problems. Taproot was activated on the Bitcoin network on November 14, 2021, with the support of miners from all over the world. What is Taproot and how will it help Bitcoin? Let's talk about this in more detail.

Disadvantages of the Bitcoin network

Even though Bitcoin is the first and most popular blockchain, it has some disadvantages, such as low transaction speed. Initially, the network was designed to process seven transactions per second, but as popularity and the number of users grew, transaction speeds and fees also increased. In 2021, the average transaction fee on the Bitcoin network reached a record high after the coin's price skyrocketed and amounted to about $60. Obviously, high fees and low transaction speeds are slowing down the development of the network, so in 2017 the developers implemented the Segregated Witness (SegWit) update to accommodate more transactions in one block. However, the problem of high commissions still remains unresolved.

Another disadvantage of Bitcoin is related to privacy. Although the network whitepaper states that Bitcoin transactions are private, in reality they are publicly available. This means that any user can find out the transaction history by owning only a Bitcoin address.

To correct the shortcomings, Bitcoin implements updates from time to time, despite the difficulties in changing the network due to its decentralized nature. The difficulty is that one person does not have enough power to implement the update, so changes are achieved through community consensus.

What is Taproot

Taproot is a soft fork to improve Bitcoin scripts and increase privacy, efficiency, and the network's ability to handle smart contracts. This update is considered the most significant change to Bitcoin since the introduction of SegWit in 2017.

The Taproot update consists of three separate Bitcoin network improvement proposals (BIPs), including Taproot, Tapscript, and its core, a new digital signature scheme called the Schnorr scheme. Taproot offers Bitcoin users a number of benefits, such as increased transaction privacy and lower transaction fees. The upgrade will also allow Bitcoin to perform more complex transactions to compete with Ethereum, especially in smart contracts, support for decentralized finance (DeFi) and non-fungible tokens (NFTs).

Taproot was first proposed by Bitcoin Core developer Gregory Maxwell in January 2018, and was integrated into the Bitcoin Core library in October 2020 following a request from Peter Wille. To fully integrate the update, node operators had to accept the new Taproot consensus rules. It eventually received support from 90% of miners and was officially activated on November 14, 2021 at block 709632.

How does Taproot work?

There are three proposals to improve the Bitcoin network, the joint activation of which constitutes the Taproot update. Moreover, each proposal influences and communicates with the others in its own way.

Schema Schnorr (BIP340)

The Schnorr scheme provides faster and more secure verification of transactions on the Bitcoin network. It is a cryptographic signature scheme developed by German mathematician and cryptographer Klaus Schnorr. This algorithm was protected by a patent for many years, but it expired in 2008. The Schnorr scheme is known for its simplicity and efficiency in generating short signatures, as well as a number of other advantages.

Bitcoin creator Satoshi Nakamoto chose the Elliptic Curve Digital Signature Algorithm (ECDSA) instead of the Schnorr scheme: at that time it was already widely used, was understandable, reliable, compact and used open source code.

However, the development of the Schnorr Digital Signature Scheme (SDSS) could usher in a new generation of signatures for Bitcoin and other blockchain networks.

One of the main advantages of the Schnorr scheme is the ability to use multiple keys within a complex Bitcoin transaction and create a single unique signature. This means that the signatures of multiple participants in a transaction can be combined into one Schnorr scheme through signature aggregation.

The Taproot soft fork allows you to hide the very fact that the script of this cryptocurrency is working. For example, it can blur the distinction between a Lightning Network channel transaction, a peer-to-peer transaction, and a complex smart contract: to an outside observer, they will all look like a simple peer-to-peer transaction. But it is worth noting that the wallets of the original sender and the final recipient will still be visible.

Taproot (BIP341)

Taproot is the update component from which it gets its name. It is based on the 2017 SegWit update and uses the Merkelized Alternative Script Tree (MAST) concept to scale the volume of transaction data on the blockchain.

Bitcoin transactions are protected by public and private keys. To move a digital asset from a wallet, the sender must provide a signature and prove that they are the real owner before they can transfer funds. In addition to using single-signature transactions, senders can also complicate them through time-locks, multi-signatures, and so on.

However, complex transactions require multiple inputs and signatures, which increases the volume of data on the blockchain and reduces transaction processing speed. Additionally, transaction information is automatically stored on the blockchain, potentially revealing sensitive data about address owners.

Integrating MAST will reduce the number of required scripts and checks, since one transaction will represent multiple scripts. Therefore, when a complex Bitcoin transaction is sent to MAST, it does not require a Merkle tree to process it, since instead of complete information, MAST only contains the conditions of the transaction being executed. This can significantly reduce the amount of data stored by the network. Thus, the update not only provides greater scalability and efficiency of the blockchain, but also privacy.

Tapscript (BIP342)

TapScript is the Bitcoin script coding language that powers the other two BIPs. It is a set of opcodes - instructions for executing a transaction. It is believed that increasing the available block space will provide network flexibility and allow Bitcoin to support and create smart contracts.

Taproot Features

As already mentioned, Taproot will significantly improve Bitcoin's privacy and expand its capabilities. Benefits of the update include:

1. Improving network scalability by reducing the amount of data for transmission and storage in the blockchain.

2. Increase in transactions per block (more transactions per second).

3. Reduced transaction fees.

Moreover, by implementing Taproot, signatures will remain immutable, eliminating a known security risk in the Bitcoin network. Now the signature of a transaction can be changed before it is confirmed, as if it never happened, which can lead to the problem of double spending and destruction of the integrity of the distributed ledger.

Importance of Taproot Update

It is believed that the activation of Taproot will improve the functionality of the Bitcoin network through fast and reliable transactions. Before Taproot, the Bitcoin protocol was still in Layer 1 development, behind other Layer 2 networks that support DApps, such as Ethereum. Bitcoin updates are an important step towards deploying smart contracts and embracing the trending NFT and DeFi markets.

As the Bitcoin network becomes more efficient with lower fees, the number of transactions will increase and the blockchain will evolve. Additionally, the ability to make private transactions will make BTC more competitive with other privacy coins on the market.

Summary

Taproot is a long-awaited update to Bitcoin. Together with the implementation of the Schnorr scheme, it will significantly improve the confidentiality, scalability, security and other parameters of the network. The changes should also bring more attention to the Lightning Network protocol and help make multi-signature an industry standard.

Increased privacy, efficiency, and security are important benefits for all participants in the Bitcoin network.