Bitcoin just got its biggest upgrade in four years. This marks the first major change to the protocol since SegWit in August 2017, which was followed by a monster rally that saw prices quadruple to hit record-breaking highs.
Known as Taproot, the highly-anticipated upgrade introduces Schnorr signatures and expands scripting capabilities, boosting Bitcoin’s prospects in five big ways:
1. Lower fees
When first coding Bitcoin, Satoshi Nakamoto originally wanted to use the Schnorr signature scheme, but it was still patent protected at the time, so instead they opted for the Elliptic Curve Digital Signature Algorithm (ECDSA).
Taproot replaces ECDSA with Schnorr signatures. This makes Bitcoin transactions smaller, reducing the load on the blockchain, and lowering fees particularly for complex multi-signature transactions.
2. Enhanced privacy
By introducing Schnorr signatures, Taproot makes simple transactions appear as multi-signature transactions.
This improves privacy for anyone using Bitcoin, making it more difficult for potential attackers to simply look into the blockchain and determine the signing arrangements that are protecting funds in a particular wallet.
3. Better programmability
Although Bitcoin still cannot support the sophisticated smart contracts that power decentralized finance (DeFi) on Ethereum, Taproot boosts the programmability of simple smart contracts to enable more complex multi-signature schemes to be implemented.
Taproot also improves the usability of Discreet Log Contracts (DLCs), another cryptographic tool that can be used to construct smart contracts on Bitcoin.
4. Fortified security
Although ECDSA signatures have been tested extensively, Schnorr signatures are theoretically even more secure — making Bitcoin more robust than ever.
Furthermore, Taproot enables more flexible multi-signature schemes to be implemented, allowing users to customize signing procedures and protect their Bitcoin with even higher levels of security.
5. Improved Lightning transactions
Bitcoin’s Layer 2 solution, Lightning Network, makes transactions faster, cheaper, and more private.
Taproot builds on these benefits to make Lightning an even more effective scaling solution. It brings greater efficiency and lower transaction fees to Lightning transactions, and enhances privacy by making them appear the same as normal Bitcoin transactions.
Laying the foundation for innovation
While each benefit will improve the average Bitcoin user’s experience, Taproot also signifies something bigger for the entire network
As the first upgrade after four years, the upgrade forms a reminder that although Bitcoin might sometimes be overshadowed by faster-moving sectors of the crypto ecosystem, it is still evolving and has yet to reach its final form.
Now, with the additional functionality of Taproot in place, the stage is set for Bitcoin developers to create even more innovation and help the world’s first and largest cryptoasset maintain its lead in the coming decade.