Bitcoin Taproot: A Multifarious Upgrade to the Bitcoin Ecosystem

Bitcoin is the first of its kind digital currency, birthed in 2008. The word "Bitcoin" is interchangeably used for the Bitcoin blockchain and its native cryptocurrency—BTC. The bitcoin blockchain is a permissionless and decentralized public ledger that records all transactional activities happening on the bitcoin blockchain.

In the course of transactions, there's a need to verify transactions before they are added to a block to form a blockchain of transaction data. This verification or validation of transactions is done by validators called "miners." The reward for mining activities by miners is paid in BTC—bitcoin cryptocurrency, the native cryptocurrency of the bitcoin blockchain—to incentivize validators in the ecosystem.

Being the first of its kind that paved the way for others, Bitcoin has had a series of hiccups in its ecosystem ranging from the trilemma problem to a series of hard forks and other hurdles it has experienced. With all these hiccups the network has undergone, it still stands as the foremost cryptocurrency with the highest market cap among its contemporaries.

Being the earliest and foremost doesn't mean Bitcoin is flawless; it still has flaws. One of these flaws is the issue of privacy. Bitcoin hasn't been able to overcome this since it operates a permissionless public blockchain where every Jack can monitor all transactions.

In order to mitigate this privacy issue that has been a significant concern within its community, core contributors like P. Wuille, J. Nick, and T. Ruffing submitted a draft BIP—Bitcoin Improvement Proposal.

Why the need for this Improvement?

Remember you approve withdrawals from your bank account by appending your signature to a designated paper slip. Your signature is your assertion that you're approving such a transaction. Similar to that in the crypto-verse is the Digital signature. As against the previously used algorithm, which makes transactions visible to all users, the improved or newly implemented algorithm will secure complex transactions by making them seem similar to simple transactions. This is another privacy shield.

What is Digital Signature?

A digital signature is a user's way of signing digital transactions of cryptocurrencies using their private keys. Before the implementation of Taproot in November 2021, Bitcoin used the ECDSA—Elliptic Curve Digital Signature Algorithm—to generate keys and also verify transactions. But with the advent of Taproot, a new dawn has been ushered in where Schnorr signatures will take over from ECDSA.

Just like Bitcoin implemented the SegWit in 2017 to enhance transaction capacity by fitting more transactions in one block, the Taproot has also been implemented to solve the issue of privacy and other related concerns on the Bitcoin network by providing another layer of anonymity to its users.

What is the Taproot Upgrade?

The Taproot upgrade was birthed from three BIPs resulting in a soft fork of Bitcoin's ecosystem. This soft fork is nothing but an upgrade of the network's software. Bitcoin Core developer Greg Maxwell initially proposed the Taproot idea in January 2018. It was later incorporated into the Bitcoin Core library in October 2020. The Taproot's adoption requires consensus rules from node operators before it can be integrated to implement the update fully. It was officially launched on November 14, 2021, after 90% of miners voted in support. The BIPs are:

• BIP 340 (Schnorr Signatures)
• BIP 341 (Taproot)
• BIP 342 (Tapscript)

BIP 340—Schnorr Signatures

The Schnorr signature is a lightweight cryptographic signature developed by Claus Schnorr, a German mathematician-cum-cryptographer. Unlike the ECDSA, the Schnorr signatures validate transactions faster in a more secure way on the Bitcoin blockchain. In addition to enhanced security, the signatures are also efficient in generating short signatures and offer lower fees and flexible multi-sig transactions.

Though the Schnorr signatures have been in existence during the advent of Bitcoin, Satoshi Nakamoto had to choose the ECDSA over Schnorr for two reasons:

1. The ECDSA has been widely used and well-understood to be secure, concise, and open-source, fitting into what was needed.

2. Claus Schnorr patented his Schnorr signatures, which later expired after Bitcoin was launched in 2008.

   
   

The Schnorr signature is laden with features that enable faster verification of transactions and better security. The key features are:

• Key Aggregation
• Signature Aggregation
• Batch Validation
• Signature Hash
• Remarkable Security

Key and Signature Aggregation

Key and Signature Aggregation made the gathering of public keys and signatures feasible. This is synonymous with verifying multiple transactions once by gathering all the transactions into a single collection. For example, if you have a transaction with 23 people, you'll need 23 signatures and 23 public keys; so, with the number of people involved, a validator will have to validate each key and signature one after the other. But with the advent of Schnorr signatures, the key and signature aggregation will assemble or gather all the 23 keys into just one key, and all the 23 signatures will be assembled into one signature. The validator will now validate the transaction once since they've been assembled into a single public key and signature. This will reduce the computational stress and the fee it may accrue.

Batch Validation

The batch validation stems from the key and signature aggregation, as explained above, where multiple transactions are assembled and batched to be validated instead of validating them one after the other. This batch validation results in fewer resources being expended for validation purposes and makes other ecosystem transactions seamless and faster.

SigHash and Remarkable Security

All transactions usually have a SigHash—signature hash— applied to them. Once it has been applied, the transactional data becomes immutable—fixed and unchangeable. If the information is tampered with or modified, the transaction becomes invalid because the SigHash will be destroyed. Initially, a small piece of information can be modified through "malleability"—which is a security risk—yet the transaction will still be valid. But the Schnorr signatures lack malleability.

Signature malleability" refers to changing a transaction's signature before it is confirmed. It makes the transaction seem as if it never occurred. This exposes Bitcoin to the infamous double-spending problem, which might jeopardize the distributed ledger's integrity.

The Schnorr signatures accomplish their remarkable security via the aggregation process.

How?

On-chain profiling will not be able to distinguish between multisig and single-signature transactions, allowing for greater anonymity. This is how complex transactions will look like simple transactions.

Isn't that remarkable!

BIP 341—Taproot

The Taproot upgrade was themed from this part of the BIPs. The Taproot relies on the 2017 SegWit upgrade to scale the volume of transaction data on the Bitcoin ecosystem using the Merkelized Alternative Script Tree (MAST).

Since public and private keys are used to encrypt transactions on the Bitcoin network, transactions are complex. Any spender must provide a signature to prove their ownership of the asset they are about to spend in their wallet.

The MAST contracts the volume of scripts and verification required to release bitcoin and presents a single MAST transaction that will represent multiple or several scripts. So, to spend your bitcoin, you only need to supply your script and the proof that your script is stored in the Markle root. This significantly lowers the volume of data that is stored on the network. Aside from enhancing the scalability and efficiency of the Bitcoin blockchain, it also provides Bitcoin users extra anonymity.

BIP 342—Tapscript

The Tapscript can be regarded as a coding language update to the Bitcoin script to make room for the other two BIPs. It is a set of "opcodes"— strings of codes that execute commands on the Bitcoin protocol that have been updated to accommodate the changes birthed by Taproot.

The Bitcoin script initially had a size limit of 10,000-byte, which has been replaced with larger scripts or Taproot contracts. The Tapscript also removes the "opcodes" cap, ushering in more flexibility in terms of features and coding, making the Bitcoin network support and developing smart contracts in the near future.

Benefits of the Taproot Upgrade to the Bitcoin Network

1. It enhances the blockchain scalability by lessening the volume of data that needs to be transferred and recorded on the blockchain;
2. Cheaper transaction fees;
3. TPS rate becomes higher; since there are more transactions per block;
4. Ends signature malleability;
5. Potential smart contract capability.

Conclusion.

The advent of the Taproot upgrade has levelled the playing ground for Bitcoin to compete with other blockchains. In conjunction with the perks it brought, the Taproot upgrade birthed a new chapter that could accommodate smart contracts. This primary tool defines the extended use cases of the Bitcoin blockchain like the possibilities of DeFi, NFTs, and more, making the Taproot upgrade a multifarious upgrade.