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Bitcoin, the world’s most valuable cryptocurrency, has acquired Taproot, its most significant improvement since 2017. As part of this upgrade, Schnorr signatures will be implemented, making Bitcoin transactions more private, efficient, and cost-effective.
On November 14th last year, the Bitcoin Taproot upgrade was activated. And this upgrade brings the promise of increased security, privacy, and smart contracts to Bitcoin.
The exciting part about the Taproot activation is the potential for Bitcoin to move beyond just the store of value narrative and move on to add smart contract functionality previously only available on other blockchains.
In this article, I’ll go over:
1. What does the Taproot upgrade does for the Bitcoin network
2. What will Taproot upgrade allow in the future.
Why does the Taproot upgrade matter?
First, let’s make sure to level set some of the words software developers use. When I use the word script, it just means the programming language of Bitcoin itself, which is called the Bitcoin script. And it’s not a movie script.
Now that we’ve got that out of the way, let’s dig into it. Taproot is the first Bitcoin protocol update since 2017 and adds new capability to the protocol to allow it to be more than just a store of value.
Bitcoin upgrades occur at a much slower pace than other blockchains and many in the community have been patiently waiting for the Taproot upgrade to actually take effect. The Taproot upgrade is actually three Bitcoin improvement proposals (BIPs), which define the three unique upgrades to the Bitcoin protocol.
The Bitcoin improvement proposal is the manner in which the community takes collective action to upgrade the protocol. With Bitcoin improvement proposals that make up the Taproot upgrade, it’s actually three separate proposals which are:
This upgrade introduces new, more efficient, and flexible private ways for users to send and receive Bitcoin.
Schnorr Signatures BIP 340
Taproot BIP 341
Next, let’s look at BIP 341. BIP 341 is the Taproot portion of the update and it defines how Bitcoin’s protocol integrates Schnorr signatures. So specifically, the Bitcoin script, which is the programming language, must be updated to allow it to evaluate Schnorr signatures which we previously discussed in BIP 340.
So Taproot integrates what’s called Merkelized Alternative Script Trees, M-A-S-T, or MAST. MAST allows users to lock outputs to multiple scripts.
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So all this jargon means is that there’s now much more flexibility in how transactions can be moved from one person to another on the Bitcoin network. Taproot also introduced a new Bitcoin script type, which is a way of spending Bitcoin, which is the Pay-to-Taproot.
To summarize what is going on on the hood, the Taproot upgrade adds more privacy-friendly and fee-reducing ways to move Bitcoin while improving the overall security of the network. And this is a win-win all around for increasing the ease of adoption and everyday use of Bitcoin.
Tapscript BIP 342
So let’s look at Tapscript. Under BIP 342, Tapscript is another piece of code that maximizes future flexibility of Pay-to-Taproot spending in order to allow for easier future upgrades, the network architecture.
So let’s recap. The Taproot upgrade allows for the Bitcoin protocol to have programmable smart contract functionality, which you will recall as I’ve previously talked about in the context of the Ethereum network.
Smart contracts allow for digital applications or dApps to be built. And with Taproot, this capability has now been activated with Bitcoin.
The reason this upgrade is worth highlighting is that the Bitcoin protocol has not been upgraded since the SegWit upgrade in 2017 which fixed the problem of transaction malleability and allowed for the implementation of the Lightning Network and many other upgrades.
What will Taproot allow for in the future?
We should see lower fees in the Bitcoin network and increased privacy as a result of the mass programming upgrade.
And finally, we should start to see DeFi projects spring up on top of the Bitcoin protocol, and this is pretty cool because it will allow a Bitcoin holder potentially to earn a yield on their Bitcoin holdings using DeFi native to the Bitcoin network and not have to actually move their tokens off of the Bitcoin network.
In fact, we already see the Stacks protocol working on smart contract solutions, including DeFi and NFTs on the Bitcoin network.
So there concludes the post. I hope you found it interesting. If you have any questions or would like to learn more about a cryptocurrency, please leave a comment below and I will do my best to find an answer.
Disclaimer: Proceed with caution because the bitcoin market is incredibly volatile. The entire content is presented for educational purposes only. After you’ve done your research and spoken with your financial advisor, you may decide whether or not to invest in crypto markets.