Bitcoin Taproot, which first rolled out in November 2021, is one of the most significant and most anticipated technological upgrades to the Bitcoin network since the introduction of SegWit in 2017. It was primarily designed to fix one of Bitcoin’s biggest problems by greatly streamlining the process of validating transactions, thereby making them faster and more affordable.
In this AAG Academy guide, we’ll explain what Bitcoin Taproot is and how it works, look at its features, and explore its pros and cons. We’ll also look at how Taproot compares to that earlier SegWit upgrade, and find out how you can take advantage of it.
It takes a great deal of computational power to validate a Bitcoin transaction. That’s largely thanks to the network’s proof-of-work (PoW) consensus mechanism, which calls on every mining node to check every single transaction and decide whether it is valid. Over the years, as Bitcoin’s popularity has grown significantly, this process has become its biggest bottleneck.
When the Bitcoin network is busy, transaction processing times can be lengthy, and that pushes up transaction fees. A number of solutions have been developed to tackle this problem, including the introduction of layer 2 scaling solutions that allow some transactions to be processed off-chain. However, Bitcoin itself has also made some notable improvements.
The latest of which is Taproot, which is its biggest and most important upgrade in over four years.
You might be interested in: What is SegWit in Bitcoin?
Bitcoin Taproot was first proposed by Greg Maxwell, one of Bitcoin Core’s leading developers, in 2018. Its primary objective is to reduce transaction processing times, and it does this by bundling multiple transactions and signatures together so that they can be validated as a group, rather than individually. This is not only faster, but it’s also considerably more efficient.
Traditionally, when a transaction was submitted to the Bitcoin network, its digital signature had to be validated against a public key. This process is still used for many transactions today, and it is both time-consuming and computationally intensive. What’s more, it took even longer to verify more complex multi-signature (multisig) transactions that required multiple inputs.
Taproot aims to solve this problem using a process called signature aggregation, which batches multiple signatures together and then validates them as a bundle. This also works for multisig transactions, so rather than requiring approval from multiple parties, it relies on just one.
The Taproot upgrade was implemented using what’s called a soft fork, which means it is completely backwards compatible with older versions of the Bitcoin network and does not require a separate blockchain. That’s different from the controversial SegWit upgrade, which was a hard fork that led to a split of the network — and the creation of Bitcoin Cash.
You might be interested in: What is a fork in the cryptocurrency?
One of the most important elements of Bitcoin Taproot, which allows it all to work so seamlessly, is the Schnorr signature. Schnorr signatures provide a simpler yet more secure way to validate transactions over Bitcoin’s original Elliptic Curve Digital Signature Algorithm (ECDSA). Unlike ECDSA signatures, Schnorr signatures offer linearity.
In a nutshell, this means that it is possible to sign a sum of signatures using a sum of public keys for the first time on Bitcoin, which is what’s needed for validating a batch of transactions at once. It also allows multiple parties to come together and produce a single signature for multisig transactions, so there’s no need for all of them to be taken into account.
The end result of this is that the amount of space these transactions take up in a block is significantly decreased. Therefore, even more transactions can be squeezed into a block, and the time it takes to process them, the computational power that’s needed, and processing fees that users must pay are all reduced. This makes Bitcoin substantially more scalable.
We’ve already looked at one of the features of Taproot, which is Schnorr signatures, but there are two more to take into account:
Taproot, which, as you might have guessed, is where the Taproot name comes from, uses the Merkelized Alternative Script Tree (MAST) to condense multiple complex Bitcoin transactions into a single hash, maximizing memory usage.
Tapscript is the coding language upgrade that was made to the Bitcoin network to make both Taproot and Schnorr signatures possible.
The obvious benefits of Taproot, which we’ve touched upon many times throughout this guide, are:
There’s also another big benefit we haven’t covered that much, and that’s improved privacy and security. Because of the way in which Taproot allows for transaction validation in batches, it’s more difficult to distinguish between different transactions. Furthermore, Schnorr signatures are not malleable like older signatures, which means they cannot be changed before a transaction is approved. This prevents the double-spending issue that is bad for any cryptocurrency.
As you can see, Taproot is far superior to native SegWit in many ways, and a far less controversial upgrade. However, that doesn’t necessarily mean that SegWit should be ignored now that Taproot is available. In fact, for many Bitcoin transactions, SegWit is still the best option. So, which one should you choose when performing Bitcoin transactions?
For simpler transactions that don’t require multisig, SegWit should remain the first choice. That’s because although Taproot greatly speeds up and increases efficiency for multisig transactions, it actually takes up more data than a simple, single-signature Bitcoin transaction all by itself.
Bitcoin Taproot is not a feature that is used by default, or automatically based on the transaction type. In fact, it brings a brand new address format (P2TR), which starts with “bc1p.” If you want to use it, you’ll have to do so manually. The first step is to get a wallet app that supports Taproot and bc1p addresses. There aren’t many right now, but these ones are Taproot-ready:
If you prefer hardware wallets, both Trezor, Ledger Live, and BitBox are compatible with Taproot.
It’s also worth noting that Taproot is only supported by a small number of Bitcoin exchanges,
Bitcoin Taproot can be used when you have a compatible wallet app with a Taproot address, which starts with “bc1p.”
Yes, Bitcoin Taproot will allow smart contracts to be used on top of the Bitcoin network, much like those built for Ethereum.
Taproot reduces transaction processing times and costs by bundling multiple transactions and signatures together so that they can be validated as a group.
This article is intended to provide generalized information designed to educate a broad segment of the public; it does not give personalized investment, legal, or other business and professional advice. Before taking any action, you should always consult with your own financial, legal, tax, investment, or other professional for advice on matters that affect you and/or your business.
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