Taproot Upgrade


Bitcoin, the first and most popular cryptocurrency, has been at the centre of the crypto ecosystem since its inception by Satoshi Nakamoto in 2009. Over the years, the Bitcoin blockchain has undergone several upgrades to enhance its functionality and scalability.

One of the most significant ones is the SegWit upgrade, an upgrade to the Bitcoin network that enables faster and more efficient transactions. Some of the data stored in transactions is moved outside the main blockchain, allowing more data to be processed with each block, thus increasing the overall throughput of the network. The size of each transaction is also reduced, making it more space efficient. SegWit also includes a new signature algorithm that is more secure and less susceptible to fraud, making it easier for Bitcoin users.

The Taproot upgrade is the most significant upgrade the Bitcoin protocol has experienced since 2017, with Segregated Witness' activation (SegWit upgrade). The Taproot Bitcoin Improvement Proposals were broadly supported by the Bitcoin mining and development community, which reached a consensus to implement Taproot in June 2021. Six months passed between the lock-in and the activation, to allow node operators and Bitcoin miners to fully upgrade to the latest Bitcoin Core version, which contains the Taproot upgrade. Let's dive in!

The Taproot Upgrade Explained

The Taproot upgrade is a soft fork upgrade to the Bitcoin blockchain network that aims to improve the network's privacy, security, and functionality. It is a result of years of research and development by Bitcoin core developers, including Gregory Maxwell and Pieter Wuille. The upgrade includes three Bitcoin Improvement Proposals (BIPs): BIP 340, BIP 341, and BIP 342.

One of the most significant features of the Taproot upgrade is the integration of Schnorr signatures, a digital signature scheme that replaces the cryptography Elliptic Curve Digital Signature Algorithm (ECDSA). The ECDSA algorithm creates a signature from the private key that controls a Bitcoin wallet and verifies that the rightful owner carries out the transaction.

Schnorr signatures are known for their efficiency and allow multiple signature data to be aggregated into a single signature. This feature improves the scalability of the Bitcoin network by reducing the size of transactions and lowering transaction fees. The Taproot upgrade also brings improvements to multi-signature transactions. Multi-signature transactions required all signatures to be revealed on the blockchain, making them less private. With Taproot, multi-signature transactions can be batched together into a single-signature, reducing the size and improving the privacy of such transactions.

Another important feature of the Taproot upgrade is the inclusion of Tapscript, a scripting language that enables complex transactions to be executed on the Bitcoin blockchain. Tapscript enhances the functionality of smart contracts and decentralized finance (DeFi) apps, making them more efficient and cheaper to use.

How the Taproot Upgrade Works

The Taproot upgrade is a soft fork, which means that it is backward-compatible with older versions of the Bitcoin protocol. New parallel blockchains and cryptocurrencies don't need to be created, as had been the case with Bitcoin Cash. This allows for a smooth transition to the new protocol without causing any disruptions to the Bitcoin network.

The upgrade is based on the Merkle tree (MAST) structure, which allows for the aggregation of multiple signatures into a single signature. It uses a new public key format that integrates Schnorr signatures, making the transactions more efficient and secure.

Benefits of the Taproot Upgrade

The Taproot upgrade brings numerous benefits to the Bitcoin network. First and foremost, it improves the network's scalability by reducing the size of transactions and lowering transaction fees. This makes it cheaper and faster to use Bitcoin for day-to-day transactions.

The upgrade also enhances the privacy and security of the Bitcoin network. With the integration of Schnorr signatures and Tapscript, complex transactions can be executed on the blockchain more efficiently and securely. It also makes multisig transactions more private by aggregating them into a single-signature.

The Taproot upgrade also benefited Layer 2 chains such as the Lightning Network, enabling cheaper, more flexible and more private transactions.

Finally, the Taproot upgrade brings improvements to the functionality of the Bitcoin network, making it more competitive with other cryptocurrencies such as Ethereum. It opens up new possibilities for DeFi applications, NFTs, and smart contracts on the Bitcoin blockchain.

Bitcoin Ordinal NFTs

In short, a rough definition of Ordinals is to say they are Bitcoin NFTs you can mint directly on the Bitcoin blockchain, without the need for a sidechain or separate token.

Ordinals were made possible by the Bitcoin Taproot upgrade. On January 21st 2023, Bitcoin Core software engineer Casey Rodarmor launched the ordinals protocol, which has taken over crypto news since. By finding a way to inscribe 4MB of data on a Bitcoin block, Casey Rodarmor has unlocked new possibilities for the Bitcoin network.

The Ordinal Theory Handbook states that, "individual satoshis can be inscribed with arbitrary content, creating unique Bitcoin-native digital artifacts that can be held in Bitcoin wallets and transferred using Bitcoin transactions. Inscriptions are as durable, immutable, secure, and decentralized as Bitcoin itself."

While there have been debates and controversy about Ordinals, there are also many benefits. Ordinals could become the new standard for digital assets, and there may be a cultural shift for the Bitcoin network and BTC cryptocurrency.

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