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What is Taro Protocol and Bitcoin Multi-Asset Issuance?

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It’s no secret that Bitcoin moves slowly compared to other chains when it comes to updates and modifications to its protocol. Although, it is important to note that this is highly purposeful, and likely the reason Bitcoin has remained the most trusted and decentralized blockchain. New features and other advancements come to Bitcoin in a precise, secure, and steady manner, prioritizing the integrity of the network for the long term.

In recent years, Bitcoin has finally begun implementing substantial updates that enable further programmability to its base layer. Along with smart contracts, Bitcoin could also soon have alternative digital assets on-chain, something long familiar to other networks like Ethereum.

Given Bitcoin’s reputation as the most stable and secure chain for transferring cryptocurrency, the introduction of the new multi-asset protocol, Taro, could be monumental for evolving Bitcoin into the most trustworthy global payment network.

In this article, we will discuss what Taro is, how it works, and when you can expect to use it.

What is the Taro Protocol?

Taro (short for Taproot Asset Representation Overlay) is a new protocol for issuing, sending and receiving assets on the Bitcoin blockchain. Taro assets can then be transferred across the Bitcoin base layer, as well as the Lightning Network.

Taro consists of a series of Bitcoin Improvement Proposals (BIPs) that have been set forth by Lightning Labs, a company developing software for the Lightning Network.

The announcement of Taro by Lightning Labs originally came in April of 2022. Since then, the team has been working on developing the technology, drafting the proposals, and gathering feedback from the Bitcoin community. Taro is one of the most highly anticipated projects being built on top of Bitcoin to enhance the utility and functionality of the network.

Taro would integrate assets alongside BTC, the mainchain’s native token. This could also include non-fungible tokens (NFTs), which can serve as collectibles and representations of real-world property ownership.

Multi asset bitcoin could commence an entirely new wave of adoption for the network.

While asset issuance has been common on other blockchain platforms for some time, this is a fairly new concept for Bitcoin. There are a few Bitcoin layers that already exist for the issuance of digital assets, however these tokens are not directly minted or exchanged on Bitcoin’s base layer, like Taro. Taro will bring a new level of security and functionality for assets on Bitcoin.

How Does Taro Work?

Taro utilizes the Taproot upgrade, which introduced new ways to structure Bitcoin transactions.

The Taro protocol essentially acts as another Bitcoin layer, which allows its assets to retain the privacy and security of ordinary BTC transactions. Additionally, Taro assets can be transacted like any other Bitcoin transaction, providing a seamless user experience. 

Taro assets can be transferred on Bitcoin in two ways:

  1. Bitcoin’s base layer as an on-chain transaction
  2. Atop the Lightning Network within an off-chain payment channel

While the base layer can be used for Taro, that is not where most Taro transactions will occur. This is due to the fact that the Bitcoin base cannot efficiently process large volumes of transactions on its own. To do so, the Bitcoin blockchain utilizes layered solutions, such as Lightning Network, to increase transaction speeds and reduce costs.

Taro and Lightning Network

By utilizing the Lightning Network infrastructure, Taro assets achieve: 

  • Near-instantaneous settlement
  • High transaction throughput
  • Low transaction fees
  • Greater privacy

Lightning Network also provides a number of advantages for the Taro protocol.

First, Taro will enable applications like Strike to give their users exposure to not only Bitcoin, but a multi-asset Lightning Network. More specifically, users around the world will have more financial access with cryptocurrencies that are pegged to fiat currencies, such as US Dollar stablecoins via the Bitcoin blockchain.

Another advantage is that Taro assets can immediately benefit from the network effects of the Lightning Network. Subsequently, any existing payment channels created from BTC transactions will also be operable for any other digital asset on the Lightning layer.

How Does Taro Improve Bitcoin?

By adding Taro assets to Bitcoin, it opens an entirely new universe of opportunities for users to interact with the Bitcoin network.

Taro could also dramatically increase Bitcoin liquidity. With this new protocol, Bitcoin users could hold a number of digital assets (including fiat currencies and NFTs) in the same wallet they use for BTC.

Moreover, a Taro asset would benefit from the efficiency of the Lightning network and inherit the security of the Bitcoin blockchain.

Taro is an important step in programming and scaling Bitcoin through the addition of new, practical use cases. Most notable of these is peer-to-peer payments. Adding Taro assets to Bitcoin could exponentially increase the nework’s rate of adoption, as users could utilize the same trusted blockchain to exchange value in a variety of assets in a fast, inexpensive, and private manner.

From a branding perspective, Taro helps Bitcoin align itself with more programmable blockchains like Ethereum. Today, many cryptocurrency users are still unaware of the innovations occurring within the Bitcoin ecosystem. Protocols like Taro will help transform the Bitcoin narrative and attract users from other chains.

When Will Taro Be Ready for Bitcoin?

On September 28th, 2022, the alpha release of the Taro daemon was unveiled, enabling developers to experiment with Taro for testnet usage.

Even with the alpha release live, the final version of the Taro BIPs may not be approved and fully implemented for some time. As previously mentioned, Bitcoin updates are slow-moving and meticulously deliberated. This was demonstrated most recently with the Taproot protocol upgrade, which took three years to go from initial proposal to implementation.

While this can seem like a drawback, it is all done for the purpose of preserving Bitcoin's unparalleled performance. Once implemented, it could position Bitcoin to be the largest, fastest global payments network in the world