Crypto Global

Bitcoin's long awaited Taproot has been activated

Nov 16, 2021

A new exciting era for Bitcoin has dawned and is called Taproot. With block 709.632, the Bitcoin protocol - i.e. with an update that has been developed and tested for more than 3 years - has been significantly updated. What's in this update?

There are some innovations in this update, because the taproot update, which is a so-called soft fork, contains several small updates that create many possibilities for Bitcoin. Bitcoin has been changed in some ways with this activation as new rules are added to the network. The old rules remain as before. That basically means that you can use the new rules if you want, but don't have to.

Such an update also means that the new address type Taproot (P2TR) has been created. Such addresses start with bc1p and enable many new smart contract functions for Bitcoin addresses. At the top of the upgrade are "Schnorr Signatures". Every transaction that Taproot uses now uses this new digital signature scheme and adds new features designed to increase the privacy, security and volume of Bitcoin transactions. So far we have always had this so-called Elliptic Curve Digital Signature Algorithm (ECDSA), which Satoshi Nakamoto chose at the time. The Schnorr signatures are also based on elliptical curves, but enable key aggregation that ECDSA does not offer. Key aggregation refers to multiple public keys that are combined into a single one and then signed with a single private key. With Taproot, both regular and multisig transactions look the same and improve privacy for everyone using the Bitcoin network. This also applies in particular to Lightning. Because the Lightning channel is based on a 2-of-2 multi-sig.

The new taproot address type (P2TR) has other advantages:

• Space savings: P2TR takes up less space on the blockchain than P2PKH.

• Security upgrades: From a technical point of view, Schnorr signatures are more secure than ECDSA signatures, as they are demonstrably secure with fewer assumptions. In addition, Schnorr signatures eliminate any signature malleability that could be present in ECDSA signatures.

All in all, Taproot makes Bitcoin faster, more efficient and more private or anonymous. This huge new feature set for Bitcoin is a huge technical advantage that the community will surely begin to use to enforce the new consensus rules.