After that first Bitcoin pizza was bought and crypto-enthusiasts started joining the community in droves, scalability has been a key issue to address for the Bitcoin protocol and its community. While other chains have created new implementations with various trade-offs, Bitcoin has maintained decentralization and security as its highest priority.
Unfortunately, security often comes at the cost of speed and scalability. However, improvements and upgrades to the network are possible. That’s where Taproot comes in. In 2021, the next critical Bitcoin upgrade after SegWit changed the blockchain paradigm. Here’s how.
Why Taproot? The Story Behind the Bitcoin Taproot Upgrade
Before Taproot ever came along, Bitcoin saw upgrades and changes that were precursors to the blockchain we know today. To better understand Taproot, let’s discuss a brief history of Bitcoin’s evolution with milestones like the Bitcoin Classic and BCH hard forks and SegWit.
One of the more well-known endeavors to increase the Bitcoin block size was the Bitcoin Classic hard fork in 2016. The primary aim of Bitcoin Classic was to increase the block size limit from 1 megabyte (MB) to 2 MB.
Bitcoin's block size limit was constantly a point of disagreement in the community. Some believed that increasing the block size was necessary to accommodate more transactions and improve scalability. But others argued that it could lead to centralization by making it more difficult for regular users to run full nodes.
Ultimately, Bitcoin Classic did not gain enough support to activate the hard fork. The proposal faced resistance from various Bitcoin developers and users, and the community was divided over the best path forward. This happened again with Bitcoin Cash, which is now a second crypto coin called BCH.
The implementation of SegWit
However, the first big, successful Bitcoin upgrade was Segregated Witness (SegWit) in 2017. SegWit was a soft fork resulting from more than two years of community debate and testing. Its primary goal was to solve transaction malleability, a challenge that made Bitcoin transactions less secure and efficient. SegWit also addressed the block size limit which was causing slow transaction processing and higher transaction fees.
This upgrade separated the digital signature (the "witness data") from the transaction data, optimizing space in each block. As a result, more transactions could be processed in a single block, leading to quicker transaction times and lower fees. SegWit also resolved transaction malleability, enhancing Bitcoin's reliability and enabled the development of the Lightning Network.
The need for Taproot
SegWit was a pivotal step in Bitcoin's evolution, but it also laid the foundation for Taproot in 2021. The need was clear because of several limitations facing the Bitcoin blockchain.
- Scalability Challenges: The limitations of the block size and the ever-increasing number of Bitcoin users created bottlenecks in transaction processing. SegWit addressed the problem of transaction bottlenecks partially, but the more Bitcoin grew and increased transactions, the more scalability improvements were needed.
- Privacy Concerns: Bitcoin is pseudonymous but users do not have complete anonymity. While Bitcoin is certainly a secure network, enhancing user privacy became a top priority. Separating witness data was an excellent start but, again, Bitcoin soon needed more robust solutions.
- Scripting Limitations: Bitcoin's scripting language had limitations that hindered its full potential. Smart contracts, an essential feature for various blockchain applications, needed more efficient implementation. SegWit improvements did not do the job fully.
Taproot was the answer to these challenges. By introducing new features and enhancements, Taproot promised to springboard the Bitcoin network into yet a new era of functionality, scalability, and security.
Developing and Activating the Bitcoin Taproot Upgrade
The Taproot upgrade was a collaborative effort within the Bitcoin community. Bitcoin Core developers were exploring ways to continue improving the network after SegWit was successfully implemented.
Greg Maxwell, a core developer, played a pivotal role in initiating the Taproot proposal in 2018. He proposed a set of changes that would improve privacy, efficiency, and scalability on the Bitcoin network.
Pieter Wuille, another prominent figure in the Bitcoin development community, authored the three Bitcoin Improvement Proposals (BIPs) that codified the Taproot upgrade. In 2020, developers Tim Ruffing, A.J. Townes, and Jonas Nick joined the Taproot project. Collaborating with Maxwell and Wuille, they worked to bring Taproot to fruition.
Unlike some of the previous solutions that ended in hard forks, the Taproot upgrade was designed as a "soft fork." This means it’s backward compatible with older versions of the Bitcoin software. It also removes the need to create divergent blockchains.
Taproot managed to gain widespread support from miners, partly due to its gradual and non-disruptive nature improvements.
The Key Features of Taproot
Taproot provided three key features that have reshaped the way transactions are processed and improved the overall efficiency and privacy of the network.
- Schnorr Signatures - BIP 340: This feature replaced the previous Elliptic Curve Digital Signature Algorithm (ECDSA) with Schnorr signatures. These signatures are more secure and efficient, allowing multiple transactions to be verified in batches rather than one at a time. This innovation significantly accelerates transaction processing, making it faster and more efficient.
- MAST Smart Contract Improvements - BIP 341: This introduced Merklized Alternative Script Trees (MAST). This technology condenses complex Bitcoin transactions into a single hash, reducing transaction fees and improving scalability. It successfully achieved its goals of making transactions more cost-effective and scalable.
- Tapscript - BIP 342: The Tapscript update streamlines smart contracts on the Bitcoin network. It reduces the data-intensive nature of smart contracts, making them more practical and efficient. This enhancement opens the door to various real-world applications, particularly in decentralized finance (DeFi).
These key features of the Taproot upgrade make Bitcoin transactions faster, more efficient, and cost-effective. They’ve not only enhanced Bitcoin's scalability but also positioned it as a significant player in the world of DeFi, offering a more versatile and efficient blockchain for users and developers.
What Taproot Did for Bitcoin
Like SegWit before it, Taproot changed a lot for the Bitcoin ecosystem. Not only did it create immediate solutions, it also opened the door for continued improvements into the future.
Transaction structures became more efficient right away, reducing fees and enhancing user experience. And unlike the Blocksize Wars, the Bitcoin community welcomed Taproot with over 90 percent of Bitcoin miners signaling support. This paved the way for seamless adoption by wallets and exchanges.
Taproot also significantly boosted privacy and security, making contracts requiring multiple signatures versus single signatures indistinguishable. Transaction efficiency and lower fees help Bitcoin maintain its status as an ideal medium for transactions, especially as mining rewards decrease. More recently, Taproot has created an ecosystem that allows for new ideas like Ordinals, BRC-20 tokens, and Bitcoin Stamps.
In fact, the long-term gains have yet to be fully realized because even two years later, new ideas and solutions are still being created with Taproot at its core. The Ordinals protocol and Taproot Assets are two examples of this, and have shown Bitcoin builders the potential they can tap into with Taproot.
Taproot, unlike SegWit, was a demonstration of the Bitcoin community's unified vision for new possibilities on the Bitcoin blockchain. It generated a sense of collective effort and inspiration to move the ecosystem forward.
Now, new protocols and solutions are coming at an increasing speed. Just in 2023, the number of possibilities for new Bitcoin use cases has created a bullish atmosphere that bodes well for the future of the original blockchain.