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Bitcoin in 2022: Taro Protocol (Now Known as Taproot Assets)

Taproot Assets was formerly known as Taro, a protocol that excited Bitcoin builders in 2022.
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Bitcoin has become a global phenomenon, revolutionizing how the everyday person engages with the financial world thanks to its decentralized design. Yet as adoption grows, so too have concerns around privacy and scaling capabilities on Bitcoin's base layer.

Taro was a layer-2 protocol released in 2022 whose potential led many to believe that it would be crucial for the development of Bitcoin. Since then, it has been rebranded as Taproot Assets by Lightning Labs following a trademark infringement lawsuit that temporarily halted its development, with Lightning Labs announcing the rebrand and upgrade in 2023. 

As part of our celebration of the Bitcoin whitepaper's 15th anniversary, we'll walk through the inception of the former Taro protocol and its role in the Bitcoin ecosystem (including its relation to Bitcoin and Lightning), how it works, and its rebrand to Taproot Assets. 

What Was the Taro Protocol? A Protocol Inspired By the Lightning Network

Taro, an acronym for "Taproot Asset Representation Overlay," was a protocol intended to bring in a new era of asset issuance, transmission, and reception within the ecosystem of the Bitcoin blockchain. By overcoming the limitations of the base layer and expanding its reach to the Lightning Network, this ground-breaking protocol sought to enable users to easily issue, transmit, and receive assets on the Bitcoin network.

Lightning Labs announced their first proposal for what was then known as "Taro" in April 2022 and, in the ensuing months, initiated a number of Bitcoin Improvement Proposals (BIPs) that actively solicited input from the broader Bitcoin community. The enthusiasm around the development of Taro effectively led it to become one of the most highly anticipated projects being built on top of Bitcoin. 

Much of the anticipation around Taro was that it was a protocol for issuing assets on the Bitcoin blockchain, including a wide number of digital assets like NFTs, collectibles and stablecoins. Taro would, effectively, enable the Bitcoin network to support many asset classes, potentially spurring a fresh wave of adoption.

Although other blockchain platforms have long practiced asset issuance, the inherent challenges that come with scaling Bitcoin have hindered the issuance of new assets on the Bitcoin base layer. Of course, with new protocols like Ordinals and RGB, we know that there have been strides in issuing new assets on the blockchain, but projects like Taro had emerged over the years to provide elegant and scalable solutions for asset issuance on Bitcoin.

The Workings of Taro and Taro Assets

Taro acted as an extra layer on top of the Bitcoin network, leveraging the security and privacy associated with standard BTC transactions while also making use of the Taproot upgrade for scalability. Essentially, Taro assets issued on the Bitcoin blockchain could be transferred over the Lightning Network, both thanks to the L2's ability to accommodate for quick transactions for lower fees, even during times of high volume. 

Taro assets were recorded on the Bitcoin blockchain through hashed metadata attached to a transaction. The hash served as a one-way data transformation, ensuring security and easy verification for transactions. Since there is no limit to the amount of data that can be represented by a hash, one blockchain transaction could encompass millions of Taro asset transfers, especially thanks to the use of a Merkle-Sum Sparse Merkle tree (MS-SMT) structure that also worked with Taproot script trees.

Taro effectively enabled these trees to be layered on top of one another, and allowed for the representation of a virtually unlimited number of assets in one Taproot UTXO that could then be transferred on-chain on Bitcoin or via the Lightning Network (including multi-hop transactions). 

The protocol's symbiotic partnership with Taproot and the Lightning Network motivated builders to contribute to a project that ensured assets on the Bitcoin blockchain could circulate freely, securely, and quickly. In a time where builders were dedicated to continue scaling Bitcoin, the proposal's potential excited the Bitcoin community.

And Today, We Have Taproot Assets

On December 8, 2022, Tari Labs, a blockchain startup, filed a complaint for trademark infringement against Lightning Labs over the name, "Taro." According to Tari Labs, the name "Taro" was too similar to its own "Tari" protocol, and the initial complaint outlined how the presumed similarity between both names could confuse and mislead users. A temporary restraining order was issued on March 13, 2023, which was then converted to a preliminary injunction that blocked Lightning Labs from continuing development on the protocol.

But in May 2023, Lightning Labs announced that the project formerly known as Taro had been rebranded as Taproot Assets. Lightning Labs released both the rebrand and software update as the popularity of BRC-20s skyrocketed and caused delays on the Bitcoin network, leading the Bitcoin community to emphasize the importance of scalability solutions for the main chain.

Since then, the protocol's development has continued in a bid to bring scalable Bitcoin transaction solutions to the world's oldest blockchain. On October 18, Lightning Labs announced the first mainnet release of Taproot Assets to mark a "new era of multi-asset bitcoin."

Unlocking Bitcoin's Potential

Ultimately, Taproot Assets is another example of how builders are working to scale Bitcoin every day. By tapping into the capabilities of the Lightning Network and Bitcoin's Taproot upgrade, it serves as an example of what seamless, elegant scaling solutions could look like on the Bitcoin blockchain.

It also embodies the potential use cases that could be available for assets on Bitcoin, a crucial component for Bitcoin's mass adoption. Therefore, while it may now go by a different name, the project formerly known as Taro does also represent a step towards scalability and, eventually, the proliferation of Bitcoin and the Lightning Network.