The first major protocol upgrade for the Bitcoin network since segregated witness (SegWit) in 2017 was activated today at block 709,632, the first block where taproot rules are validated. The block was mined by F2Pool.
This upgrade is a milestone enthusiastically celebrated by much of the Bitcoin community who expect cheaper fees, enhanced transactional privacy, broader decentralized finance development capabilities, and more
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A key part of the Taproot upgrade – adding Schnorr signatures – aren’t new technology. The idea was first proposed in 1988 by cryptographer Claus-Peter Schnorr. As far back as 2014, Bitcoin Core contributor Greg Maxwell and Blockstream CEO Adam Back, and others were discussing Schnorr signature use in Bitcoin. And numerous Bitcoin developers have supported replacing Bitcoin’s signing algorithm—ECDSA—with Schnorr, which this upgrade accomplishes.
The excitement over Taproot isn’t especially new either. The upgrade has been highly anticipated by many sectors of the Bitcoin industry for at least the past year when mining pools started signaling their support.
What are new are the possibilities this upgrade brings to Bitcoin?
- Transactions signed with Schnorr signatures include less data (approximately 12% less), which makes them cheaper to process and reduces the storage requirements for validating nodes compared to ECDSA-signed transactions.
- With Schnorr, multi-signature transactions and tooling also becomes exponentially easier to use and build. Taproot also enhances the potential uses for complex transaction types, rules, etc. on Bitcoin’s blockchain and across Bitcoin’s layers (e.g., Lightning), which fuels much of the decentralized finance-related excitement for Bitcoin’s ecosystem.
- Privacy benefits from the Taproot upgrade come from single- and multi-signature on-chain transactions appear identically on the network’s ledger. Bitcoin holders who transact from a multi-signature storage solution for extra security won’t be identifiable.
Taproot’s activation is just the beginning though. Enthusiasm over the upgrade should be tempered by viewing Taproot as a foundation for Bitcoin builders to work from, not a final solution to Bitcoin’s scaling and privacy nor a death blow to alternate blockchain networks building related financial products for their ecosystems.
For starters, only 54% of Bitcoin nodes have updated to support the upgrade. Over the next 12 months, hopefully that number increases dramatically.
Two external resources are worth sharing for Taproot enthusiasts looking for more content related to the protocol upgrade.
- Maxim Orlovsky published some helpful diagrams on Taproot inputs and outputs.
- As is tradition, Blockstream provided hats for the upgrade.
With Taproot, Bitcoin's future is even brighter than before. The activation marks a huge accomplishment for years of tedious and tireless developer work. Enhanced privacy, easier scaling, and more building optionality are the best positive developments for the world's largest and oldest cryptocurrency network.
For a fuller picture on Taproot-related conversation, here’s a selection of several hot takes and snarky jabs about Taproot from Twitter.