What is the Bitcoin Taproot Upgrade?

Three years in the making and at least twice more in ideation, the Taproot upgrade, a melting pot of several innovative ideas spanning over years in the history of Bitcoin, is the biggest upgrade to the Bitcoin network in 4 years. Thankfully, it is nowhere near to the civil war of sorts that the SegWit upgrade had caused due to the ideological divide it induced. With consensus of 90% of the BTC miners in June this year, the Taproot Soft Fork has been activated at block 709,632, on November 15.

What does this upgrade aim to do?

This upgrade is set to make the Bitcoin network more private, secure and scalable, through the implementation of these three, well thought through BIPs (Bitcoin Improvement Proposals):

BIP 340: Replacing the Elliptic Curve Digital Signature Algorithm (ECDSA) with Schnorr Signatures.

There was never even a shadow of doubt over the superiority of Schnorr Signatures over ECDSA Signatures, which was primarily developed because the Schnorr Signature algorithm was patented. The essence of Taproot upgrade lies in this change in the transaction signature validation algorithm.

Understanding Schnorr Signatures

Schnorr signatures are used to implement Proof of Knowledge through Zero Knowledge Proof.

Putting it simply, through Schnorr Signature Algorithm the Verifier is able to ratify that the User, whom they are communicating with, is genuine by confirming that the private key which the User has is the one corresponding to a certain public key (Proof of Knowledge), without actually knowing the User’s private key (Zero Knowledge Proof).

Schnorr signatures are packed with a bunch of features that enhance privacy and use lesser computational resources, hence making them superior to ECDSA signatures.

Firstly, Schnorr Signatures use a maximum of 64 bytes for a signature, which is substantially smaller than the 72 bytes occupied by an ECDSA signature, which results in utilisation of lesser computational resources and also lesser fees to be paid by the user for the transaction in comparison to an ECDSA user.

Secondly, the linear math that powers Schnorr Signatures enables batch validation to be implemented. When a node gets a block from the network, instead of parsing each transaction individually and validating each ECDSA signature one by one, multiple Schnorr signatures can be smashed into one, and can be mathematically validated all at once, thus reducing the utilisation of resources.

Thirdly, with Schnorr Signatures, multiple public keys (from a multi-signature script) can be combined to create a single public key for which multiple private keys can sign utilising new signature protocols. This will be used in conjunction with MuSig2 which lets things be compressed into a single signature for the single combined public key. This will improve Lightning Network privacy by making Lightning Network channels ( multi-signature script) look like regular bitcoin transactions (single-signature script).

The implementation of Schnorr Signatures would spell improvement of privacy, scalability and lowering of transactional costs of BTC. With less data being pushed into the blockchain, transactions are set to become more energy, resource and time efficient.

Both BIP341 and BIP342 rely heavily on Schnorr Signatures.

BIP341: Introducing MAST to minimise how much information about the spend-ability conditions of a transaction output is revealed on chain at creation or spending time.

By adopting MAST (Merkelized Abstract Syntax Tree), which replaces P2SH(pay to script hash), the Taproot update will boost scripting capabilities and privacy . P2SH and MAST are two methods for locking transactions until the requirements are satisfied. Merkle branches reveal the actually executed part of the script to the blockchain, as opposed to all possible ways a script can be executed, as happens in P2SH. This results in space savings and an increase in scripting privacy

This, as well, plays a role in making the transactions more anonymous without hampering the transparency of the blockchain network.

BIP342: Introducing “Tapscript”

This BIP is essentially all about making changes to the script so as to make the semantics of Script compatible with the improvements suggested in BIP340 and BIP341. Specifically, the goal is making Schnorr signatures, batch validation, and signature hash improvements available to spends that use the script system as well. Tapscript changes how signatures are evaluated to take advantage of the efficiency improvements.

Improved support for smart contracts

A particular important shortcoming of Bitcoin was its limited support for complex smart contracts. Moreover, simple contracts that can be executed on Bitcoin are virtually useless as they are often cumbersome to design, very costly to execute, time-consuming, and also limit the number of transactions on the Blockchain network.

However, with Taproot coming into the picture, it gives Bitcoin users significant flexibility in constructing complex smart contracts on the bitcoin chain. It also improves the efficiency and privacy of Lightning Channels, which are smart contracts, themselves.

Summing it up….

1. The Taproot Soft Fork involves the activation of Schnorr Signatures, MAST and MuSig2 and adoption of Tapscript.
2. Schnorr Signatures equip the Bitcoin network with batch validation and smaller signatures, thus requiring lesser computational resources. It also provides the ability to execute multi-sig scripts as single-sig scripts. Thus making Lightening Networks more privy.
3. MAST enhances privacy by revealing only the actually executed part of the script to the blockchain.
4. Bitcoin users shall get significant freedom in constructing and utilising Smart Contracts on the network, due the introduction of the above stated upgrades and TapScript, that make Smart Contracts cheaper, smaller and easier to run.
5. TapScript includes the changes made to Script, the Bitcoin scripting language, in order to make semantics of certain opcodes within the scripting language compatible with the newly introduced upgrades.
6. These upgrades are intended to enhance the privacy, security and scalability of the Bitcoin network.

If you’re interested to read more on these technologies, you can check out Kryptopedia.