With the recent upgrade to the Bitcoin (BTC) protocol going live last week, we thought we would delve into the in’s and outs of the Bitcoins latest upgrade, Taproot.
What is the Taproot Upgrade?
In a nutshell, Taproot is a soft fork that brings a number of little tweaks to the Bitcoin protocol. Taproot doesn’t implement one grand new feature, but instead brings about many smaller improvements.
The upgrade looks improve transaction efficiency, networks speed and reduce costs while also giving a higher level of privacy, security, and scalability to the network. Taproot also looks to open the door to new possibilities for future protocol developments, such as complex smart contracts.
Why the upgrade?
Up until now, Bitcoin’s main utility was mainly to be used as a non-censorable peer-to-peer payment system and store of value. Despite it being a number of years with little to no significant protocol changes (after all, why change something that works so well), the Bitcoin developers felt that Bitcoin’s overall utility is still somewhat limited.
With the more recent next generation blockchains all including smart contracts, which have become increasingly important due to dApps and DeFi, demand for such utility has now become something of an industry standard. Therefore in order to keep up and stay competitive with other chains, bitcoin needed an upgrade.
How will bitcoin improve after this change?
What does Taproot mean for users of bitcoin?
By reducing the storage of transaction data on the network, Bitcoin’s new upgrades allows it to accommodate more complex smart contracts as well as scale more easily. Additionally, by showing transactions in a standard format on the public blockchain, it increases the privacy of some transaction types. With Taproot bitcoin transactions will look identical to all other bitcoin transactions, no matter how many other signatures were involved. Users of the Lightning Network and multi-signature wallets, for example, will immediately benefit from increased privacy and lower transaction costs.
There are no required changes for a bitcoin user; this upgrade is backwards compatible and everyone can continue to use Bitcoin as normal. In the near future, wallets and exchanges will begin to offer an upgraded version that has Taproot enabled, allowing more efficient and private Bitcoin transactions. For example Ledger is already offering a way to create taproot accounts, and Cash App also has plans to add support soon.
Is this a hard or soft fork?
This is officially a soft fork upgrade. No new bitcoin is being created, or forked away from the original chain. You can read more about the different hard forked versions of Bitcoin in our previous article, here.
You can see the latest version of the Bitcoin ‘family tree’ here.
How was the decision made to upgrade Bitcoin?
Like with previous Bitcoin protocol upgrades, the process is long and reaching full consensus to implement the upgrade requires full consensus from all the operating nodes on the bitcoin network. Nodes have to ‘signal’ their support for the upgrade and this can take many months, even years to gain a full consensus from all the nodes.
Many of the upgrade features we see today in the Taproot upgrade were actually thought up during the time of the last upgrade, demonstrating just how long it takes to change the Bitcoin protocol!
So there you have it, Taproot, bitcoin’s latest update. Taproot is only the beginning and there are many other BIP’s already being worked on for Bitcoin’s next planned upgrade that will look to implement covenants, drive-chains and cross-input signature aggregation (CISA). Exciting times.