One of the biggest Bitcoin Myths is that it’s an “old technology” that never changes. This obviously isn’t true and one of the most recent examples of these constant changes is the massive Bitcoin Taproot soft fork. Taking years to plan, build and execute, it’s something all investors should be aware of given the long term impacts it will have on the network.
What Is Taproot Bitcoin?
Taproot is an upgrade to the Bitcoin network that was activated at block 709,632 on the 14th of November, 2021. While most upgrades to Bitcoin are usually small, Taproot was a substantial upgrade that increased the networks security, privacy and speed whilst at the same time decreasing its fees, transaction costs and processing requirements.
What Does Taproot Do?
The Taproot upgrade was a soft-fork upgrade with miners signalling their support for it with a 90% consensus. It improved the Bitcoin network in a number of ways by simultaneously activating three separate Bitcoin Improvement Proposals (BIPs):
We’ll cover each of these in detail below, but their activation enabled:
- Increased Security: When you create a new transaction to spend your bitcoin, you must sign it to show that you have the authority to spend those bitcoins. Bitcoin initially used the Elliptic Curve Digital Signature Algorithm (ECDSA) to sign transactions. Schnorr signatures replace this and are more secure than ECDSA.
- Increased Privacy: Due to the combination of the three BIPs, less information is broadcast to the Bitcoin network during a transaction. This increases privacy for users, especially those using Multisig Wallets as their transactions become indistinguishable from single sig ones
- Increased Speed: The new Schnorr signatures allow complex transactions to be verified much quicker than via ECDSA as they can be done in batches rather than one at a time
- Decreased Transaction Size: As there is less information published to the Blockchain, it means that each transaction is smaller in kilobytes. This greater efficiency means that the Bitcoin network can process a higher number of transactions
- Decreased Fees: Since Transaction Fees are only based on how big in kilobytes a transaction is, the decreased transaction size also translates to a decreased fee as well
- Improves Smart Contract Use: Due to the speed and efficiency improvements of the new Schnorr signatures, it allows for a significant improvement in Bitcoins ability to handle smart contracts. While they have always been a part of Bitcoin, Taproot has allowed them to scale much better than before