22 May Bitcoin’s ‘Upgrade for the Ages’ Taproot is Here
It’s been long coming, but now it’s here – Taproot, Bitcoin (BTC)’s largest upgrade in more than four years.
The upgrade’s relevance has been widely noted, and crypto-focused research firm Arcane Research stressed that it is “arguably the most important and anticipated upgrade to the Bitcoin network” since Segregated Witness (SegWit), activated in 2017. As a reminder, SegWit led to a community split and a hard fork that created Bitcoin Cash (BCH).
“Taproot is arguably the most significant upgrade to date, setting the stage for massive innovation and adoption.”
Taproot expands Bitcoin’s smart contract and scripting capabilities, enhances wallet functionality, reduces fees for multi-signature (multisig)/complex transactions, improves privacy measures, and can improve privacy on the second layer solutions like the Lightning Network.
Furthermore, it came with Schnorr, a soft fork that improves privacy, scalability, and speed, and encodes multiple keys into one.
Thanks to the solution called Merkelized Abstract Syntax Tree or MAST, smart contracts are now set to be more efficient and private by revealing only the relevant parts of the contract when spending. As Arcane Research puts it:
“The improvements in privacy and efficiency come from the fact that the spender of a MAST output does not have to reveal all the scripts, only the one they used. No one can see how many there are. No one can see what the others are.”
A new type of payment
To be slightly more technical, the Taproot upgrade is made of three Bitcoin Improvement Proposals (BIPs): Schnorr Signatures, Taproot, and TapScript.
Out of these three, the last one is left unexplained. It is a new form of script that removes the 10,000-byte size limit, thus giving Bitcoin smart contracts more flexibility, and it enables scripts that are only partially executed to have the rest of their execution code hidden until it is used. It integrates a reformed version of Bitcoin’s scripting language to enable Schnorr/Taproot transaction, as well as make future Bitcoin upgrades easier, said Kraken Intelligence, the exchange’s team of in-house researchers.
Per Arcane Research, BIP enables a new type of payment called Pay-to-Taproot (P2TR), meaning that:
“[U]sers can pay to either a Schnorr public key or the Merkle root of other scripts. By validating these newer forms of transactions, TapScript provides users with a choice of being anonymous or remaining public.”
And all together, as Kraken stated, these improvements allow standard single-signature transactions, multisig transactions, and complex smart contracts “to look identical on the blockchain.”
Commenting on this upgrade, Paolo Ardoino, Chief Technology Officer at crypto exchange Bitfinex, said that it “comes timely as development on the Bitcoin blockchain has been accelerating quickly this year.” It not only delivers more scalability, privacy, and smart contract functionality on the blockchain, but also “greatly expands upon what has been possible so far,” he said, adding:
“We can expect Taproot to unlock the power of Lightning Network to bring true scalability to the Bitcoin blockchain, readying it for use in more complex operations.”
Additionally, while it’s unclear if the upgrade will affect the price of BTC and whether Taproot has already been priced in, some see the potential for the price to see higher numbers too. Just two days before the upgrade, Lukas Enzersdorfer-Konrad, Chief Product Officer at trading platform Bitpanda, noted that Taproot arrives in times when the crypto market is trading at all-time-high levels, adding:
“The bulls may have some power left to push the market higher as a result of the upgrade to the network. Taproot makes Bitcoin better through a better network efficiency and higher levels of privacy for transactions, which may unlock a much higher price.”
Risks and benefits
Arcane Research stated that, like any other, this upgrade too carries some risks. Since Taproot is a soft-fork upgrade, network participants don’t have to update their software to implement the change. Still, wallets and services will have to update to make Taproot functional, and users should not use Taproot “until they are convinced that the vast economic majority enforces it.”
“Miners “activating” Taproot means little without users enforcing it: If miners update, but most users do not, miners can revert the upgrade and steal Taproot funds from the minority users,” said the company.
On the other hand, since fee advantages are expected, it’s also expected for most network participants to accept the upgrade, though its benefits will likely take time to be realized.
As reported, almost every developer Cryptonews.com spoke with agreed that Taproot’s core features will be widely used, but not immediately.
Additionally, as more users enforce Taproot, “the positive effects on efficiency and privacy are amplified: the more wallet addresses in a cluster, the more privacy, and the less block space,” wrote Arcane Research, while popular wallets Ledger, Trezor, Sparrow, and Wasabi already announced their support.