Theunis Jansen van Rensburg·
CryptocurrencyTechnology

Bitcoin gets its first upgrade in years, Taproot

Bitcoin has received a long-anticipated code upgrade that focuses on the network’s privacy and security. The network enhancement went live after the 709,632nd block of Bitcoin was mined. It is the first significant upgrade for Bitcoin since the introduction of ‘Segregated Witness’ in 2017.

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This upgrade has been dubbed ‘Taproot’ and introduces Schnorr signatures that can make more complex transactions on Bitcoin – such as those from multi-signature wallets – look like just any other transaction, hence improving the privacy and security of the transactions. The switch to Schnorr signatures also has implications for network scaling, as the Taproot upgrade swaps out the cryptographic framework ECDSA.

Taproot is part of a larger effort by developers around the world on a mission to improve the privacy of Bitcoin, since its transaction history is very public. A curious user can look up any transaction ever sent on Bitcoin using a public block explorer such as Mempool.space.

This is still the case with Taproot, but details of some more complex transactions (often called “smart contracts”) will be able to be hidden. For example, while right now Lightning Network transactions stand out on the blockchain, Taproot offers the possibility for them to look just like any other transaction, further enhancing transaction privacy.

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Another issue Taproot should address is Bitcoin’s limited transaction space, which makes scalability a huge problem for the digital currency. Developers can’t simply increase this limit without impinging on Bitcoin’s decentralization, so they are always looking for ways to make use of the currently available blockspace more efficiently.

Because Schnorr signatures can be used to combine multiple signatures into one, they can help reduce the amount of data stored in the blockchain. This reduction in data size could boost scalability of MuSig2, for example, a multisignature scheme developed by Blockstream researchers, which requires a number of signatures for one transaction.