What is Taproot? It’s not a carrot or a turnip, but a Bitcoin update that promises to keep some transaction details buried deep in the metaphorical soil.
Taproot is on track to be the biggest Bitcoin upgrade since 2017, which led to a hard fork of the network—in which one blockchain splits into two separate ones. Though Taproot isn’t quite as contentious, it’s worth understanding how it would alter the world’s biggest blockchain network.
What is it addressing?
The Bitcoin blockchain is composed of computer code. So, when you send a transaction on it, the “coins” are really connected to a script. These commands tell the blockchain what you can do with them. Usually, that means using a private key to provide a signature and prove you are able to spend them.
But people can make more complex transactions (i.e., smart contracts, or code that defines an agreement between a sender and receiver), such as requiring multiple signatures before coins can be spent or mandating a waiting period known as a “timelock.”
When said coins are ultimately spent, those scripts become public on the Bitcoin blockchain, adding a lot of data to an already bulky blockchain, while potentially exposing some details about the people involved in the transaction. Therefore, it makes the job of blockchain tracking firms such as CipherTrace and Chainalysis, and the government agencies to which these firms provide data, a bit easier.
What would Taproot do?
With Taproot, all parties in a transaction can cooperate to make these complex transactions look like standard, person-to-person transactions. They’d do so by combining their public keys to create a new public key, and combining their signatures to create a new signature. It does this through a device called Schnorr signatures.
What are the benefits?
For these specific types of complex transactions, Taproot would enhance privacy while reducing the amount of data needed to make them, thereby lowering transaction costs that are near historic highs due to Bitcoin’s growing popularity.
Moreover, the privacy benefit will extend to applications that use time-locked contracts, such as CoinSwap, which mixes Bitcoin transactions to obfuscate the coins’ origin and destination. The same applies to Lightning Network, a second-layer network that bundles transactions together off-chain. These apps, due to Taproot, become more private.
55% of all the #Bitcoin hashrate is now signalling support for the Taproot upgrade.
— Documenting Bitcoin
(@DocumentingBTC) May 4, 2021
As its originator wrote, “I believe this construction will allow the largest possible anonymity set for fixed party smart contracts by making them look like the simplest possible payments.”
Whose idea was it?
Taproot was proposed in 2018 by Gregory Maxwell. Maxwell is a developer for Bitcoin Core, open-source software created by Blockstream, where Maxwell was once CTO. Bitcoin Core is the predominant software client for Bitcoin, meaning it allows individuals to interact with the blockchain. By downloading Bitcoin Core, people can take part in validating transactions on the Bitcoin blockchain.
What’s the current status?
Bitcoin miners—those who mint new blocks on the network—must literally “signal” that they support the upgrade during a two-week period. (The “difficulty” of mining Bitcoin adjusts every 2,016 blocks, or about two weeks, depending on how quickly miners are creating new blocks; the goal is to average a new block every 10 minutes.)
In order for the upgrade to go through, 90% of mined blocks during that period must include data from the miners known as a “signal bit.” If the threshold isn’t met, miners will have another chance during the next two-week period, up until August 11. Once accepted, Taproot will go live in November. (The upgrade will not go through during the first round as many miners have yet to signal support, reportedly due to technical issues.)
Why 90%?
Bitcoin is a global project with millions of stakeholders, including developers, miners, institutions and individuals. As such, there needs to be broad buy-in for substantive changes.
The standard process for getting buy-in is to submit a Bitcoin Improvement Proposal (BIP). BIPs include code changes to the Bitcoin protocol and can be put forward by anyone.
Some wanted to move forward with Bitcoin Improvement Proposal (BIP)9, which made the upgrade contingent on miner support. Others threw their weight behind BIP8, which would push through the update with or without miners’ support—though there was little resistance.
Community members, in public meetings, ultimately decided on a proposal for adoption called “Speedy Trial,” which gave a three-month period for miners to signal with a 90% threshold needed for activation.
Bitcoin Core developer Luke Dashjr caused a small stir when he stood in opposition to Speedy Trial, insisting that consensus had been reached on BIP8. Dashjr created client software that allowed node operators to activate Taproot early.
buyer beware https://t.co/shHLy0VBFC
— Steve Lee (@moneyball) April 16, 2021
Bitcoin developer Matt Corallo referred to it as an “unaudited fork of Bitcoin Core with consensus-divergent rules” and “a great way to end up with two different Bitcoin tokens and confusion as to what it is.”
Who doesn’t support it?
Edward Snowden, the former National Security Agency contractor who blew the whistle on a US phone surveillance program, told Ethereal Summit last week that Taproot might actually make Bitcoin privacy worse. Most Bitcoin developers disagree with this assessment.
In addition, most miners have yet to signal support, but the three-month activation window gives multiple opportunities to do so.
By and large, however, the proposal seems popular as it makes Bitcoin a bit more like digital cash with few perceived drawbacks.p
When was Bitcoin’s last major update?
The Segregated Witness (SegWit) update in 2017 was the last major upgrade to the Bitcoin network. The goal of that upgrade was to take away some signature data in transactions to carve out more room within blocks for transactions. The Bitcoin blockchain would thus become faster.
Some thought it didn’t go far enough and treated Bitcoin as an investment vehicle instead of usable currency; Bitcoin, they felt, needed even larger block sizes that would allow it to be transacted quickly and cheaply like cash. That faction initiated a hard fork to form Bitcoin Cash.
Taproot has far fewer detractors than SegWit. Instead, the main conflict has been over how to make it a reality.
