What Is Taproot, the Privacy-Focused Bitcoin Upgrade?

Here’s the nitty-gritty on Taproot, a Bitcoin update that promises more privacy and lower transaction fees.

In brief

• Taproot is a Bitcoin network upgrade slated for November 2021.
• It is the biggest upgrade to the network since SegWit in 2017, which led to the creation of Bitcoin Cash.

What is Taproot? It’s not a carrot or a turnip, but an update of the Bitcoin which promises to keep some details of the transaction buried deep in metaphorical soil.

Taproot is on its way to being the biggest Bitcoin update since 2017, which has led to a network fork – in which one blockchain splits into two separate ones. While Taproot isn’t all that controversial, it’s worth understanding how it will alter the world’s biggest blockchain network.

What is he addressing?

The Bitcoin blockchain is made up of computer code. So when you send a transaction on it, the “coins” are actually connected to a script. These commands tell the blockchain what you can do with them. Typically, this means using a private key to provide a “signature” and prove you can spend it.

But people can make more complex transactions (ie smart contracts or code that defines an agreement between the sender and recipient), such as requiring multiple signatures before coins can be spent or requiring a waiting period known as “locking the time”.

When those coins are finally spent, these scripts become public on the Bitcoin network, adding a lot of data to an already voluminous blockchain, while potentially exposing some details about the people involved in the transaction. Therefore, it makes the job of blockchain tracking companies like CipherTrace and Chainalysis, and the government agencies to which those companies provide data, a little easier.

What does Taproot do?

With Taproot, all parties to a transaction can cooperate to make these complex transactions look like standard person-to-person transactions. They would do this by combining their public keys to create a new public key and combining their signatures to create a new signature. This is done through a device called Schnorr signatures.

What are the benefits?

For these specific types of complex transactions, Taproot should increase privacy while at the same time reducing the amount of data needed to create them, thus reducing transaction costs that have become much higher as Bitcoin has become most popular.

In addition, the privacy benefit will extend to apps that use time-locked contracts, such as CoinSwap, which mixes Bitcoin transactions to obfuscate the origin and destination of coins. The same applies to the Lightning Network, a second-tier network that groups transactions outside the chain. These apps, due to Taproot, become more private.

55% of all the # Bitcoin hashrate is now signaling support for the Taproot upgrade.

– Documenting Bitcoin 📄 (@DocumentingBTC) May 4, 2021

As its creator wrote: “I believe this construction will allow as much anonymity as possible for smart fixed-party contracts, making the payments look as simple as possible.”

Whose idea was that?

Taproot was proposed in 2018 by Gregory Maxwell. Maxwell is the developer of Bitcoin Core, open source software created by Blockstream, where Maxwell was previously CTO. Bitcoin Core is the predominant software client for Bitcoin, which means it allows individuals to interact with the blockchain. By downloading Bitcoin Core, people can participate in transaction validation on the Bitcoin blockchain.

What is the current status?

Bitcoin miners – those who mint new blocks on the network – had to literally “flag” that they supported the update over a two-week period. (The “difficulty” of mining Bitcoin adjusts to every 2.016 blocks, or about two weeks, depending on how quickly miners are creating new blocks; the goal is to average a new block every 10 minutes.)

In order for the update to be completed, 90% of the blocks mined during this period needed to include data from the miners, known as the “signal bit”. If the limit was not reached, the miners would have another chance during the next two weeks, until August 11th. After several times failing to reach the 90% limit, the miners in the network reached the goal on June 12, with two months to save.

Assuming nothing goes wrong, Taproot will go live in November.

Why 90%?

Bitcoin is a global project with millions of stakeholders, including developers, miners, institutions and individuals. As such, there needs to be broad acceptance for substantive changes.

The standard process for getting membership is to submit a Bitcoin Improvement Proposal (BIP). BIPs include code changes to the Bitcoin protocol and can be presented by anyone.

Some wanted to move forward with the Bitcoin Improvement Proposal (BIP) 9, which made the update dependent on miner support. Others supported BIP8, which would drive the upgrade with or without miners’ support – though there was little resistance.

Community members, at public meetings, finally decided on an adoption proposal called “Quick Test,” which gave miners a three-month period to signal with a 90% threshold required for activation.

Bitcoin Core developer Luke Dashjr caused a small stir when he opposed the Speedy Trial, insisting there was a consensus on BIP8. Dashjr created client software that allowed node operators to enable Taproot in advance.

buyer beware https://t.co/shHLy0VBFC

— Steve Lee (@moneyball) April 16, 2021

Bitcoin developer Matt Corallo referred to it as an “unaudited Bitcoin Core fork with diverging consensus rules” and “a great way to end two Tokens Bitcoin tickets and confusion as to what it is.”

Who doesn’t support?

Edward Snowden, the former National Security Agency contractor who denounced a US phone surveillance program, told the Ethereal Summit in May 2021 that Taproot could actually worsen Bitcoin’s privacy. Most Bitcoin developers disagree with this assessment.

Overall, however, the proposal was popular, as it makes Bitcoin a bit more like digital money, with few perceived drawbacks.

When was the last big Bitcoin update?

The Segregated Witness (SegWit) update in 2017 was the last major update to the Bitcoin network. The purpose of this update was to strip some signature data on transactions to make more space within blocks for transactions. The Bitcoin blockchain would become faster.

Some felt it didn’t go far enough and treated Bitcoin as an investment vehicle rather than a usable currency; Bitcoin, they felt, needed even larger block sizes that would allow it to be traded quickly and cheaply as cash. This faction started a hard fork to form the Bitcoin Cash.

Taproot had far fewer detractors than SegWit. Instead, the main conflict was about how to make it a reality.

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