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Bitcoin’s Taproot Upgrade: Everything You Need to Know

Last week saw Bitcoin’s much-awaited Taproot upgrade going live on block 709,632 on the Bitcoin blockchain.

This is the first Bitcoin upgrade in four years after the SegWit upgrade in 2017. The upgrade will add enhanced scalability, security, and privacy to Bitcoin transactions bringing its functionality in line with competing blockchains like Ethereum that already employ programmable smart contracts.
Besides, Bitcoin users will be able to enjoy enhanced wallet functionality and reduced fees for far more complex transactions. Developers would find a larger toolkit from now on to bring new projects to light that weren’t earlier possible on the bitcoin blockchain.
There’s a lot more to Taproot than could prove a gamechanger for the oldest and largest blockchain network. Before we pull ourselves into a thorough follow-through of the features and utilities the recent upgrade would add, let’s have some quick highlights of the events that led to the current juncture:

Timeline of the Taproot Upgrade
Unlike its peers, such as Ethereum, Bitcoin had a slow and steady journey towards upgrades and developments to its network. Every upgrade must wait for significant consensus and coordination from validators and miners present on the network. Also, being a robust blockchain, any amendments to the network are hard owing to its decentralized and dispersed network of diverse network participants.
Taproot, one of the most significant and unanimously supported upgrades, has taken its own time and course to get activated:
1.Discussions had begun on this upgrade as early as 2016.
2.2017 belonged to the SegWit (Segregated Witness) upgrade that helped increase the block size on the Bitcoin blockchain. It further paved the way for the launch of the Lightning Network that helped in making bitcoin payments faster and cheaper.
3.In January 2018, Gregory Maxwell, a cryptographic systems developer, first officially proposed the upgrade.
4.In October 2020, three Bitcoin Improvement Proposals (BIPs) were used to merge Taproot’s codebase into the Bitcoin Core. These BIPs were written by Jonas Nich, A.J. Townes, Pieter Wuille, and Tim Ruffing.
5.A ‘Speedy Trial’ method of consensus was agreed upon in March 2021 to achieve a consensus for the upgrade activation. The speedy trial gives miners a series of two-week blocks for signaling support for the upgrade.
6.In May, the process kicked off between two difficulty adjustments to gather a 90% signal support required from the processed blocks.
7.Once the required signal support was attained, the upgrade activation was ‘locked in’ to happen in November.
8.Between the locked-in date and the activation date, i.e., 14th November, miners and node operators upgraded to Bitcoin core version 0.21.1, determining which block contains valid transactions.
9.The upgrade that contained the merged code for Taproot was finally activated on block 709,632 on the network on 14th November.

The Gamechanger: Schnorr Signature Upgrade and Other Upgrades
Earlier, Bitcoin employed the ECDSA (Elliptic Curve Digital Signature Algorithm) signatures where users had to sign their transactions with a private key to approve sending the transaction to another location.
Taproot upgrade includes three upgrades, but the core upgrade is a multi-signature feature called ‘Schnorr’ signatures. Under this upgrade, public keys from multiple user addresses are combined into a single aggregate public key. Hence, the need for multiple public keys is eliminated, reducing the complexity of transactions that often bog down the network. By approving a single digital signature and a public key, a transaction verifier can confirm that all parties involved have signed the transaction.
This upgrade will help improve the privacy and security of the transactions. It would also help in making the network more efficient and scalable as multiple signatures collapse into one.
Another upgrade embedded in the Taproot code is MAST (Merkelized Abstract Syntax Tree). This upgrade would allow for Bitcoin transactions difficult to trace and analyze. This would support the Schnorr upgrade to make the multi-signature transactions indistinguishable from the simple ones.

What Utilities does the New Upgrade add to the Bitcoin Network?
The upgrade has handed developers a broader set of possibilities that couldn’t be explored earlier owing to Bitcoin’s ‘virtually useless’ smart contracts feature that has always existed on the network being costlier, more time-consuming, and limiting in terms of transactions. The list of added features and utilities include:
Improved Usability
With the upgrade active now, the bitcoin wallet will be able to support multiple transactions that could be hashed as one transaction. This feature could be useful to streamline various applications. An example of this can be transactions from multiple parties taking place under a single wallet address. The day-to-day bitcoin applications will thrive on this enhanced network, having faster transaction throughput and cheaper transaction fees.
Improved Privacy and Security
Taproot Upgrade would help obfuscate certain complex transactions on the chain to improve privacy. For instance, spending details in certain transactions could be masked using the upgrade.
This feature wouldn’t be of much use to retail investors, but “The biggest benefit is going to be to large custodians and institutions where security and their signature schemes they want to keep private,” says Brian Mosoff, CEO at Ether Capital. The Schnorr signatures upgrade, and the MAST upgrade lends obscurity to the transactions, thereby making the transactions more private and secure.
Better Efficiency and Improved Smart Contracts Capability
Post the upgrade, the transactions on the network will become more data-efficient, block capacity will be optimized, and transaction costs will become cheaper. Once efficient, Bitcoin blockchain would be able to utilize its existing smart contract capabilities by leveraging the Schnorr signatures upgrade. Smart contracts are self-executing transactions whose results depend on pre-programmed inputs.
Enhanced smart contracts’ ability implies better flexibility and scalability for the network that could support DeFi and NFTs on Bitcoin. Who knows, the current upgrade might stir a wave of technological innovations on the ‘original crypto network’?

Will Bitcoin End Ethereum?
Undoubtedly, Taproot will help improve the overall efficiency of the Bitcoin network and its capacity for scripting, i.e., deploying smart contracts bringing it closer to the Defi and dApps host, Ethereum. It is worth noting that even though the Taproot upgrade is active on the network, the work is far from over. Bitcoin wallets, exchanges, and other such services would need to upgrade to support Taproot features. Bitcoin is currently no match to the ever-widening horizons of Ethereum and its other smart contracts supporting peers.
Developers have been eyeing quite a few changes that rely on the upgrade. Katherine Dowling, general counsel & chief compliance officer, says, "But, while bitcoin likely won't ever be as flexible as Ethereum from a smart-contract standpoint, with Taproot, that gap will now narrow. And that means we'll likely see an increase in day-to-day applications for bitcoin.”
The blockchain world is ever-evolving, and so is Bitcoin. Bitcoin still needs to grapple with issues like its energy-intensive mining. Taproot upgrade is a sure step towards better efficiency and scalability. Bitcoin is still getting there!
This article is authored by Pratik Ahuja, Senior Manager, Marketing at WazirX
Disclaimer: Cryptocurrency is unregulated digital currency, not a legal tender and subject to market risks. The views and opinions expressed in the article are those of the author(s) and don't represent any investment advice or WazirX's official position.

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