What is Taproot?

Taproot is a software update to the Bitcoin network that allows for more privacy, security, and scalability. Taproot is an improvement not only in degree but in kind–it enables new functionalities that Bitcoin could not previously execute. This software creation of Bitcoin Core developer Gregory Maxwell is praised as the most important upgrade to Bitcoin since the SegWit upgrade in 2017.

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In 2018, Maxwell offered Taproot as a solution to a set of issues that plagued Bitcoin: transaction speed was slowing down, transaction fees were rising, and users continued to be concerned about the blockchain’s public recording of an individual’s transactions. 

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Maxwell’s Taproot proposal consisted of a series of ‘Bitcoin Improvement Protocols’. These received popular support by the Bitcoiners, and Taproot was finally implemented in June, 2021. Five months later, Taproot was activated.

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Taproot may be thought of as a combination of three different proposals that all aim to enhance Bitcoin’s scalability. These three Bitcoin Improvement Protocols were: BIP 340 / Schnorr Signatures, BIP 341 / Taproot, and BIP 342 / Tapscript.

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Taproot allows multisig transactions to be aggregated such that an observer would struggle to distinguish between single and multisig transactions. This improves an individual’s privacy, since on-chain data becomes more difficult to parse in a way that would allow tracking an individual’s transaction history.

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Taproot also solved a major issue of the Lightning Network. Whenever a Lightning channel is closed, all of the signatures that had been associated with the channel are funneled to the blockchain. This can cause the network to significantly slow down. With Taproot, bundles of over 1000 signatures may be delivered as a single transaction. 

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As Gregory Mawell said: “One point that comes up while talking about Merkelized scripts is can we go about making fancier contract use cases as indistinguishable as possible from the most common and boring payments. Otherwise, if the anonymity set of fancy usage is only other fancy usage it may not be very large in practice.”

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As I wrote about in an earlier blog post, the Block Size Wars were about the size of each block, with one faction calling for bigger block sizes and another faction calling to keep the network pure. Maxwell ended the debate once and for all by creating the software necessary for a Layer 2 technology to thrive. 

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From the user’s perspective, the Taproot upgrade was seamless. Nevertheless, it was a momentous change in Bitcoin’s history. At long last, the ‘Bitcoin is not scalable’ criticism has been addressed. Fees will continue to fall, and transactions will require less and less data. In just a few years, we may witness the proliferation of applications built on top of Bitcoin, now that Lightning is ready for widespread use. And we have Taproot to thank.