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Taproot, the long-awaited Bitcoin upgrade, is activated

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Taproot, the long-anticipated Bitcoin upgrade has been operated with latest features on Sunday 14th, November.

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At 5:15 UTC (00:15 EST) on Sunday November 14th, Taproot, the long-awaited Bitcoin upgrade activated on block 709,632, will open the door for developers to include new features that improve privacy, improve scalability and network security. The upgrade was completed in June when more than 90% of miners decided to "signal" their support. The programmed wait time between lock and activation has since allowed node operators and miners to fully upgrade to the latest version of Bitcoin Core 21.1, which contains the combined Taproot code. Only then can they enforce new rules that allow the use of new types of transactions.

What is taproot?

Taproot is a mix of various technical innovations in Bitcoin history in one upgrade. It was first proposed by Greg Maxwell in 2018. Since then, the three Bitcoin Enhancement Proposals (BIPs) codifying Taproot have been written by Pieter Wuille, Tim Ruffing, A.J. Towns and Jonas Nick and merged into Bitcoin Core in October 2020.

At the heart of the upgrade is Schnorr's signature. Bitcoin uses the ECDSA cryptographic scheme for its "digital signature", in which a user signs a transaction with his private key to allow it to be sent elsewhere. Taproot is based on another scheme called Schnorr. Every transaction that Taproot uses now uses this new digital signature scheme and adds new features designed to increase the confidentiality, security and volume of Bitcoin transactions.

Schnorr signatures are not only smaller and faster than ECDSA, but have the added advantage of being "linear", a combination that increases the confidentiality of Bitcoin transactions and allows for lighter and more complex "smart contract" (encrypted) execution rules). Taproot will have many positive impacts on various projects across the ecosystem. For example, some signature transactions that require more than one group of signers for the transaction are cheaper and use less data.

Let’s take a look at two distinctions that gives an insight to Taproot:

  • Privacy
  • Scalability

Privacy

Taproot is part of a larger effort by developers around the world that aims to improve Bitcoin privacy as its transaction history is so publicly available. Curious users can use public block explorers like Mempool space to search for every transaction that has ever been sent to Bitcoin. This is still the case with Taproot, but the details of some of the more complex transactions (often referred to as "smart contracts") can be hidden. For example, while Lightning Network transactions are currently prominent on the blockchain, Taproot offers the option to make them look like any other transaction, which further enhances transaction confidentiality.

Scalability

Another issue that Taproot has to solve is the limited space for Bitcoin transactions, which makes scalability a big issue for the digital currency. Developers cannot simply increase this limit without affecting Bitcoin's decentralization, so they are always looking for ways to use the available block space more efficiently.

Since Snorr signatures can be used to combine multiple signatures into one, they can help reduce the amount of data stored on the blockchain. This reduction in data size can improve scalability, for example, MuSig2, a multi-signature scheme developed by blockstream researchers that requires a certain number of signatures per transaction.

What to Expect from Bitcoin and Taproot?

So far, more than half of known Bitcoin nodes signify support for the upgrade. The rest are working with legacy software, which means they still can't enforce the new root tap rules - at least not until they upgrade to Bitcoin Core 21.1. However, the network will work fine.

Any miner who has not updated the new software will not be able to successfully dig the network and will not be able to win new block rewards. But the developers did a lot to ensure that the miners had plenty of opportunities to overcome the speed. In fact, more than 90% of miners have indicated that they plan to upgrade to new software, which is why Taproot was able to "lock out" in early June and there was a 5-month delay before activation began. Enabling it doesn't mean all the work is done. Users can't send or receive new types of transactions until their specific Bitcoin wallet supports them - and most wallets don't yet. Portfolio developers need to write new code for their portfolios to enable these transactions.

If history is a milestone, it could be months or years before the wallet gets on the train. It took about two years for Bitcoin's most recent relatively large upgrade, SegWit for example, to reach 50% acceptance. Not to mention that even though Taproot allows for more complex use cases (such as performing private transactions on the Lightning Network that are no different from normal transactions), developers still need to build these tools and deploy them separately. The most important thing is that Taproot allows new developments and new solutions. This gives developers a powerful toolbox to work with as they continue to develop, replicate, and build on ideas. Some of these projects are already underway. Many of them are still unimaginable.

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