Taproot has now been locked in and should activate in November of this year. Taproot is the name of various technological innovations that have all been bundled together. When they are activated, they should make Bitcoin (BTC) transactions significantly cheaper and also more private, along with several other benefits, the OKCoin team explains in a blog post.
The cryptocurrency trading platform points out that this upgrade is the “culmination” of several years of hard work. In January 2018, Bitcoin developer Gregory Maxwell had initially proposed the concept of Taproot, the OKCoin team noted.
In September 2019, another prominent Bitcoin developer, Pieter Wuille, also began preparing the proposal to implement it in Bitcoin Core. In November 2019, the proposal underwent a comprehensive review and testing phase, with around 150 application developers taking part in a 7-weeks long review process.
Since then, developers, BTC miners, and other end-users have been arguing or debating what the best or ideal activation method could be, and it’s now “locked-in”, “meaning it should activate in November 2021,” the OKCoin team noted while asking “why all the work and all the fuss?”
The digital assets firm explained that Bitcoin’s whitepaper is titled is “Bitcoin: A peer-to-peer electronic cash system.” Bitcoin is “definitely” peer-to-peer and electronic, however, it does not fully work like cash yet, the OKCoin blog post noted while adding that Taproot helps with “getting closer to that goal by improving Bitcoin on two important fronts: Fungibility and privacy.”
OKCoin further explained:
“For a currency to be fungible, all of its individual units need to be indistinguishable from any other unit. The U.S. Dollar is fungible because any individual one dollar bill is worth the exact same as any other one dollar bill. It doesn’t matter whether one bill was used to pay for illegal drugs and another to fund a wedding: Their history doesn’t change their value, they’re worth the exact same.”
At present, since BTC transactions are publicly broadcasted on the blockchain, and because different types of transactions have “different digital fingerprints,” it’s fairly to obtain identifying information about “specific bitcoin transactions,” the digital assets company noted while adding that being able to identify the past use of certain coins “can ‘taint’ them and make them less valuable than ‘clean’ coins.”
OKCoin further noted that this is a major threat to Bitcoin’s fungibility. With Taproot, all transactions “appear to be of the same kind on the blockchain,” OKCoin explained while adding that it makes it a lot more difficult to actually know if a certain transaction “was a one-to-one payment (from Alice to Bob) or a complex transaction, involving multiple signatures, time based conditions, or the Lightning network.”
The crypto trading platform added:
“Taproot increases the privacy of Bitcoin in a similar way. By analyzing a multisig transaction, one can also identify the specific multisig set-up that was used, the ways the success conditions of a certain smart contract have been met, the type of wallet that was used, etc. This allows to track the transaction history of some users and deprives them from the ability to trade privately. Hiding this data brings both privacy and fungibility gains to Bitcoin, which make it more akin to cash.”
OKCoin also noted that Taproot brings gains in transaction efficiency and smart contract flexibility which will “help strengthen Bitcoin as the foundation of the new decentralized financial system.”
The crypto-assets firm also mentioned that the gains in efficiency are quite clear: “Bitcoin currently uses Elliptic Curve Digital Signature Algorithm (ECDSA) signatures, which usually weigh around 72 bytes, while Schnorr signatures weigh 64 bytes.” So the switch from one standard to the other “comes with a 11-12% gain in efficiency,” OKCoin revealed.
They also noted:
“Schnorr signatures allow for signature aggregation. Currently, if Alice, Bob and John need to sign a transaction, three signatures have to be broadcasted to the blockchain: that of Alice, Bob and John. The more signatures are needed, the bigger the size of the transaction and the higher the transaction fees get.”
So, with ECDSA signatures, the more complex the smart contract, “the more expensive it gets to run it,” OKCoin explained while noting that by allowing for complex smart contracts to be executed by a single signature, Taproot “greatly reduces the cost of running smart contracts.”
OKCoin further explained:
“This will allow developers to build more complex financial instruments on top of Bitcoin, which should usher in an era of Bitcoin DeFi services. It also allows sophisticated market players to operate at a lower cost. Both gains in efficiency and flexibility will cement Bitcoin’s role as the foundation of the decentralized finance ecosystem.”
While commenting on how Taproot actually works, OKCoin wrote that the recipe for all these improvements includes an update is known as Taproot which consists of three code proposals called Bitcoin Improvement Proposals or BIPs:
- BIP #340, which adds “Schnorr signatures”,
- BIP #341, which adds “Taproot”,
- BIP #342, which adds “Tapscript”.
As noted by OKCoin:
“Taproot builds on top of Schnorr signatures … The main function of Schnorr signatures is to make ‘multi-signature’ (multisig) transactions, which require multiple signatures to be processed, and traditional, single signature transactions look the same on the blockchain.”
The OKCoin team also mentioned that the function of Taproot is “to extend this approach to other, more complex sorts of transactions and make them also look like traditional ones.”
All of this works because Schnorr signatures provide key and signature aggregation, which allows combining “different public keys into a new, single one.” Say Alice and Bob’s signatures are “required for a multisig payment to John: thanks to Schnorr, it’s possible to combine Signature A and Signature B into Signature C,” the OKCoin team explained while noting that when Alice and Bob offer their signatures and public keys, “only ‘Signature C to John’ will appear on the blockchain.” The transaction will “therefore look like a traditional single signature transaction from C to John.”
The OKC9in team further noted:
“Taproot, beyond the research and development of the code, has required extensive review testing. Reviewing and testing are absolutely key to maintaining the security of the Bitcoin network, and are a central part of the work of Bitcoin Core developers. This work is open source however, which means the developers are volunteers funded by the community.”
“At Okcoin we believe supporting Bitcoin development is an investment towards a better, more inclusive financial future. This is why we have already allocated one million dollars to fund open source developers through our Open Source Developer Grant Program.”
Two of OKCoin’s grantees are quite focused on testing and reviewing:
- Marco Falke, who has worked on “improving Bitcoin’s testing framework over the years.”
- Joao Barbosa, who “dedicates a large portion of his time to reviewing new code proposals.”
To learn more about these developments, check here.