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Taproot is live — What are the benefits of Bitcoin’s latest update?

Taproot is the protocol’s most important update since SegWit was implemented four years ago.

Image by Advantus Media Inc. (License)

On November 14, at block height 709,632, Taproot was finally activated. The Bitcoin community was excited about this event since it’s the most important protocol update in four years.

An introduction for newbies: What is a soft fork?

As you may know, blockchain technology takes its name from its method to store data in a public ledger. Miners incorporate the information in small data containers called blocks, which are registered in a chain. Every block is linked through its unique hash to both the previous and the following block.

A fork occurs every time the blockchain splits into two different chains. However, there are two different types of forks:

  • A hard fork happens when the chain introduces changes to its code that are incompatible with the previous rules or versions. Because the new protocol rules oppose the old ones, nodes have to choose which chain they continue to support and mine, often leading to the creation of new chains or coins. An example of this is Bitcoin Cash.
  • In a soft fork, the changes introduced are an addition to the existent code. With the rules being compatible, no new chains are generated from soft forks, as nodes jump from the old chain to the new one until the migration is complete.
Photo by Akinori Uemura on Unsplash

Bitcoin’s Taproot update is a soft fork of the Bitcoin chain. It introduces new upgrades that improve the existing protocol, for which miners have been signaling approval for almost a year.

Taproot improvements and Schnorr signatures

The Taproot update aims to improve the privacy, scalability, and security of the Bitcoin network and lay the groundwork for additional smart contract functionality that will enable further decentralized finance applications on Bitcoin.

Developers have formally specified the updates into three Bitcoin improvement proposals or BIPs: BIP-340, 341, and 342. We’ll explain the most relevant changes for non-technical audiences below. Let’s begin with Schnorr signatures.

Schnorr signatures

If you’ve read about Taproot, you’ve undoubtedly seen this term. Schnorr signatures are a cryptographic function that enables the combination of several public keys in a single, complex transaction signature.

Schnorr signatures (Sourche: CryptoBriefing).

Schnorr signature advantages for Bitcoin

Space and data storage requirements

The first advantage of using one Schnorr signature to replace several is freeing up space.

“An ECDSA signature is usually about 72 bytes in size for a single signature in a transaction. Schnorr signatures clock in at a maximum of 64 bytes per signature. That’s a roughly 12% savings in size compared to ECDSA for every Schnorr signature.”

—Shinobi for Bitcoin Magazine.

Requiring less data space for signatures is a win-win situation overall. Users pay lower fees to push their transactions through, and nodes also need fewer storage requirements to validate users’ Schnorr signatures.

Efficiency, speed, and scalability

Unlike ECDSA signatures, which have to be processed one by one, nodes can validate Schnorr signatures in batches.

Batch validation greatly improves speed and efficiency, reducing the consumption of CPU power it takes to process blocks.

Schnorr multi-signature properties are also worth mentioning. Instead of unraveling all public keys in a multi-signature transaction, Schnorr’s MuSig standard enables adding all public keys together and “generating” one public key that includes everyone’s data inputs, effectively making a joined transaction.

The benefits of being able to add Schnorr signatures together for batch processing are exponential. The more of them are validated at once, the more computational power is saved. This capacity, added to the multi-signature standard, leads to tremendous scalability potential.

Transaction privacy

Schnorr signatures’ MuSig standard also has significant advantages in preserving user privacy.

Outsider observers can only see the one public key generated by adding all user inputs together like a single signature script.

The same goes for layer-2 applications like Lightning Network channels. Schnorr multi-signatures are indistinguishable, as they show just like regular signatures. Nobody will be able to identify who nor how many people signed the transactions.

Thanks to this update, Bitcoin users who transact from MuSig wallets won’t reveal their public keys. The Schnorr signatures will blend all keys and generate a new, unidentifiable one.

Photo by Dmitry Demidko on Unsplash

The future of Bitcoin

Taproot is a highly anticipated upgrade that brings several benefits to the Bitcoin protocol. It is also a massive achievement for Bitcoin developers, who have been working on it for years.

The community has shown extreme enthusiasm for the upgrades in the user experience Taproot brings, primarily in privacy and scalability. Hopefully, the improvements will also catch outsiders’ eye, driving more adoption and usage of Bitcoin on a global scale.

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