Getting to the Root of the Bitcoin Taproot Upgrade

  • 10/01/2021
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The most significant update for bitcoin in four years is on its way. With miners signaling their support at a growing rate, we’re getting closer to this interesting upgrade to bitcoin. While it has a rather intriguing name, even if you aren’t well versed in bitcoin script and the deeper aspects of this massive cryptocurrency, it’s still easy to get an idea of what Taproot means for bitcoin and what it could mean for you too.

The last major update to bitcoin was Segregated Witness (Segwit) back in 2017. While bitcoin development can be a little slower than some other projects, it is always exceptionally well considered as the bitcoin core developers and contributors are conscientious as to the stability of the network. With such a large market cap, it’s more important than ever that bitcoin continues to be safe, secure, and reliable so it can continue to thrive, something which has been the case for many years now thanks to the efforts of all those who have contributed.

The Taproot update is comprised of multiple BIPs (bitcoin improvement proposals), three in total. While they are separate proposals, they are often looked at collectively as just Taproot as they all work together to provide the benefits of this upgrade. These proposed upgrades are Schnorr Signatures, Taproot, and finally Tapscript, or BIP 340, 341, and 342.

Hard or Soft Fork?

The Taproot update will be in the form of a soft fork, it will be backward compatible, so any wallets you currently use won’t be affected. In short, there’s nothing that a user has to do to prepare for Taproot, and that’s fantastic from a usability standpoint.

Activation of Taproot will be locked in and proceed provided that enough blocks include a signal from miners showing support during one of the signaling periods lasting 2016 blocks. For Taproot to proceed, at least 90% of blocks mined (1815 blocks) in one of these periods must show support in the form of a flag which is essentially just a message attached to the mined blocks.

Every 2016 blocks, a new signaling period begins. If consensus is not reached by August 2021, this speedy trial approach will end, and a new approach must be considered if Taproot is to go ahead. If consensus is reached, Taproot is set to launch in November 2021.

Taproot’s Privacy Benefits

One of the key parts of the Taproot update that has intrigued people is the increased privacy aspect. While Taproot won’t fundamentally change the pseudo-anonymous nature of bitcoin, it will help improve the privacy of some very useful transaction types.

While bitcoin scripts are considered less flexible than some cryptocurrencies, they can still be extremely powerful and combined with the stability of the network even more so. Bitcoin script is even used by LocalCoinSwap to power our non-custodial trading of bitcoin, so this is something that we value enormously. The Taproot update increases the flexibility of bitcoin scripting by bringing with it Tapscript. Tapscript will allow for the easier addition of new features in the future, expand the flexibility of bitcoin scripts, and by offering users of bitcoin more privacy.

This increased privacy comes into play primarily when you are working with multi-signature transactions. These are commonly used in various ways and are especially appealing to businesses or individuals storing large amounts of bitcoin. Previously if you were to create a more complex bitcoin script, you would have to add this in each transaction that involved inputs from the funds to be spent. The problem with this is that this is visible to others and takes up a significant amount of space, typically costing more to get into a block than a less complex transaction.

Taproot will allow scripts to be hidden in transactions; this allows a much higher degree of privacy when using bitcoin this way, which is only likely to increase as wallets become more advanced and leverage the growing feature set provided by the network. Using merkelized abstract syntax trees, you only have to expose the part of the script being executed, not the whole thing. The benefits of this are clear in that you no longer have to share your conditions for spending funds, and this ensures far greater privacy for these important transactions in the real world. By reducing the information broadcast on the network, impressive bitcoin scripts with advanced conditions can be produced while still maintaining the privacy of how these are functioning; this makes them more practical and allows for better security of those involved in the transactions.

Even if you don’t use transactions that would be enhanced by taproot, it’s also a positive for you simply as it’s easier for your transactions to just blend in with those around them. When those around you share less information, it also removes information shared about you as a by-product. Any improvements in privacy are typically positive, provided they don’t remove any of the crucial parts of how bitcoin operates, which is not the case here.

Schnorr Signatures

Signatures are an essential part of bitcoin, and one of the upgrades coming with Taproot is the integration of Schnorr digital signatures into bitcoin. Implementing this new form of signature will further bolster the strength of bitcoin and its core cryptography.

Firstly, Schnorr Signatures are around 11% smaller than Elliptic Curve Digital Signature Algorithm, which we currently use more commonly called ECDMSA. The use of ECDMSA signatures relies on some assumptions in terms of how secure it is, and while Schnorr is in the same boat, it depends on fewer assumptions leading to at least the same level of security, but likely more. In any case, the safety of signatures used in bitcoin have proven themselves secure and have been battle-tested with time, so there’s no reason to be concerned about the current use of ECDMSA.

As Schnorr Signatures are smaller when used in bitcoin, more room is available to build out complex transactions. Schnorr is the reason that the Taproot upgrade will allow for combining signatures into one that is broadcast to the network, allowing for increased privacy with multi-signature transactions. Multiple participants could be involved in sending bitcoin, but anyone inspecting the transaction on the blockchain would only be able to see a single signature.

Schnorr Signatures leverage the existing SegWit update to improve the privacy of bitcoin, lower transaction fees, and help further bolster the security of the network. Interestingly, Schnorr Signatures are actually newer than ECDSA, which means we aren’t moving to rely on something more unknown but just new to bitcoin.

New Ways to Send Bitcoin

Taproot brings with it a new way to send bitcoin, Pay-to-Taproot (P2TR). This new way to transact combines the functionality of current approaches Pay-to-Script-Hash (P2SH) and Pay-to-Public Key (P2PK), providing the privacy and flexibility benefits that we’ve touched on previously.

P2TR transactions utilize Schnorr Signatures to reduce the amount of data required to broadcast a transaction, reducing fees for more complex transactions and increasing the flexibility of what is possible with bitcoin script via Tapscript.

Taproot will allow for more creativity from bitcoin wallet developers, exchanges, and throughout the bitcoin ecosystem. While you may not notice immediately how significant this upgrade is as bitcoin inevitably becomes more pervasive, it’s likely to begin to start affecting how you work with bitcoin in your day-to-day transactions.

If you want to explore some of the more advanced things you can do with bitcoin script, check out our bitcoin trading scripts over on GitHub. There you can explore the complete non-custodial bitcoin trading process used on LocalCoinSwap directly. You can see how we use P2SH transactions to trade bitcoin without the need for custodial storage efficiently.

We’re always excited to see new things coming to bitcoin, and as such, we’re enthusiastic to see what can be achieved with new developments to the network. If this has got you excited about bitcoin, head on over to LocalCoinSwap and browse through thousands of trade offers from around the world and get your feet what by trading bitcoin the best way, peer-to-peer.

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