You’ve probably heard of Taproot over the last few months. Besides random green boxes appearing in the Twitter bios of Bitcoiners, what does it actually mean, and why on earth should you care?…
For those of you that do not want to ask the question and risk the scorn of the maximalist cabal, we’ve got your back with a handy little guide. Let’s dive in.
Taproot is the biggest upgrade to Bitcoin’s code since 2017. It was agreed by the Bitcoin network in June 2021 and basically meant developers could get to work implementing new functionality that increases bitcoin privacy and reduces transaction fees.
Bitcoin miners need to update their software and signal their agreement or disagreement in favour of the update. A popular website, taproot.watch, has been displaying the signals with each block processed by a miner either displayed in red or green to signify whether the respective miner was not ready or ready for the upgrade.
Once a threshold of 90% of the blocks mined over a set period of 2016 blocks (2 weeks) had signalled readiness then the update is set to be activated for implementation in November.
Generally, Bitcoin users support this update so have been including green signal boxes on social media and publicly communicating their support to miners and encouraging them to signal readiness. Users that run their own node will also need to upgrade their node before November to allow it to validate Taproot transactions.The update is already available here: https://bitcoincore.org/bin/bitcoin-core-0.21.1/
So what does Taproot actually do?
The most common and basic Bitcoin transaction set-up (script) is where all you need is the private key to authorise a transaction. But you can also place other conditions on a transaction creating more complex scripts, such as requiring 2 of 3 private keys to authorise a transaction or use a timelock that restricts the transaction to only being confirmed after a specific date (blockheight). These conditional transactions are often referred to as smart contracts and this is where Taproot takes effect.
Lower cost in sending bitcoin:
Smart Contracts can become very complex with growing amounts of script that increases the size of the transaction, increasing the transaction fee and taking up more space on the blockchain. This places more demand on limited blockspace increasing fees for all users, not just those using smart contracts. But Taproot will reduce and simplify the amount of script used and therefore reduce complexity and cost.
More user privacy
Another drawback to more complex transactions is that once completed they display the full terms and conditions of the smart contracts publicly, which can be differentiated from standard transactions thus reducing their users privacy. Taproot restricts public access to all of that data making it look like a standard, basic Bitcoin transaction. These privacy benefits extend to regular users as well through tools such as the Lightning Network and CoinSwaps that use smart contracts but with the upgrade will look like standard transactions when they interact with the main Bitcoin blockchain.
The Taproot upgrade will go ahead in November and is evidence of Bitcoins slow, steady development, bringing greater privacy to users and reduced transaction fees for everyone.
If you would like more information on the technical details we recommend reading: https://bitcoinmagazine.com/technical/taproot-coming-what-it-and-how-it-will-benefit-bitcoin