Bitcoin developers have spent four years developing and deploying Taproot on its mainnet. So far, there have been no reports of failures, errors, etc., to hinder the upgrade, a clear sign of a stable upgrade.
The purpose of Taproot is to improve the usability and privacy of cryptocurrencies and at lower transaction costs. Earlier this year, 90% of Bitcoin miners approved the Taproot upgrade, delivering another significant programming improvement since the 2017 SegWit upgrade patch, which improved Bitcoin’s scalability. So, what problems can Taproot now solve after going live on 14 November 2021?
What is Taproot?
Greg Maxwell, a Bitcoin Core developer, first proposed the Taproot upgrade in January 2018. This was followed up by Pieter Wuille who submitted a code acquisition request in October 2020, and Taproot was incorporated into the Bitcoin Core codebase.
Taproot is a Bitcoin soft fork that improves the Bitcoin script. Its goal is to enhance other relevant indicators of complex transactions while increasing privacy.
By releasing time locks and requiring multiple signatures, transactions on the Bitcoin network can become more complex. Anyone can detect transactions that use complex functions, which necessitate the creation of various transactions, without Taproot. The upgrade may conceal some activities associated with such transactions. So now even when these functions are used in a transaction, they appear to be a single transaction. This is a significant change for Bitcoin users who value their privacy.
Taproot has the ability to make people completely invisible to the Bitcoin scripts that are running. For example, after implementing Taproot, different Bitcoin payment methods look the same, whether they are Lightning Network channel transactions, peer-to-peer transactions, or through complex smart contracts. Only peer-to-peer transactions are visible to the monitors of these transactions. However, it is worth noting that Taproot has not changed the fact that the wallet information of the sender and the ultimate recipient is exposed.
Bitcoin’s urgent problems
People’s attitudes toward Bitcoin have shifted in recent years. Many people appear to be more willing to use Bitcoin as a tool to combat inflation, and I believe it indeed has superior properties as a store of value.
On the other hand, millions of Bitcoin owners want to see it used more as an accounting unit and payment method; the other two primary functions are defined as currency. The adoption of Bitcoin as a national currency in El Salvador, the first nation to adopt the digital asset officially, is the clearest example of its potential as a currency to date.
Although Bitcoin is regarded as an elegant solution for person-to-person financial transactions, its coding has remained essentially unchanged since its inception in 2008 by a person or a group of people under the pseudonym of Satoshi Nakamoto. These purposefully simplified programming parameters of Bitcoin limit the number of transactions per second, network bandwidth, and settlement speed, enabling a typical block size regardless of data size, reducing efficiency, and increasing transaction costs.
With the introduction of other blockchains, such as Ethereum and Cardano, which can speed up actual transaction payments and provide more complex services, such as DeFi and NFT, the advantages of Bitcoin are becoming less clear.
The improvements Taproot provides for Bitcoin
Taproot is a collection of three separate Bitcoin improvement protocols, technically titled BIP 340, 341, and 342. In addition, they will collaborate to provide the following enhancements to the creator of this digital asset:
⦁ Binding features are used in one of the BIP upgrades to improve transaction privacy.
⦁ The most recent Taproot upgrade improved the features and functions of smart contracts in each Bitcoin block.
Schnorr signatures used by the Taproot upgrade will also reduce the amount of data needed for multi-signature transactions, which are more complicated to process than standard ones. And with lesser data involved, transactions will become more time-efficient, thereby making the transactions cost-efficient.
Although Taproot’s upgrade has accelerated Bitcoin’s progress, it still falls short of smart contracts functionality common to Ethereum, Cardano, and Solana, which have many built-in functions and mechanisms to deal with ‘just in case scenarios.
Breathing new life into Bitcoin
Some may question the value of the Taproot upgrade regarding these programming enhancements as little more than a coding ‘catch-up’ by the Bitcoin developer community.
However, a more balanced view is to regard this as “an overwhelmingly positive upgrade to the Bitcoin protocol, but it is not itself enough for investors to get excited.” This is echoed by Anndy Lian, intergovernmental blockchain expert, and Chairman, Asia at BigONE exchange: “Bitcoin Taproot is indeed promising to tech guys like me. But investors’ enthusiasm over the upgrade seems to be neutral as reflected by the price. I am sure over time, everyone can see its impact clearer.” The key to this thesis is that the idea that Bitcoin as a smart contract blockchain is over-exaggerated. What positives there are related to the fact that the upgrade has been accomplished without any technical mishap, and through a successful community consensus process that bodes well for the future. It also lays the foundations for valuable use cases in the future, for example in the growth of payments rails for the metaverse.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.