Bitcoin and its network is growing and developing in leaps and bounds consistently over time. Perhaps you’ve already heard of Taproot, not a plant, but one of Bitcoin’s most anticipated updates. Scheduled to go live in November 2021, this will be the biggest update since the creation of Bitcoin Cash in 2017.
So what is this major update all about? How is it going to shake things up? How can this update possibly drive the price of BTC up?
Who came up with Taproot?
We all know that Bitcoin is a completely open-sourced and decentralised platform, so, where is this update coming from?
Taproot was proposed by Gregory Maxwell, back in 2018. Maxwell is a developer for Bitcoin Core, a software client for Bitcoin that enables individuals to interact with the blockchain and plays a major role in validating transactions on the Blockchain network.
What is the update targeting?
With Bitcoin today, making more complex transactions isn’t an airtight system. When the coins are spent, the scripts and transactions associated with the coins become public to the network and all its users. This can potentially expose details regarding the individuals involved in the transaction, making it a liability as other firms or surveillance agencies can extract this data.
The Taproot update will increase security, fungibility and transparency, enhance the smart contract effectiveness, and will even make major updates to the network’s back-end code.
How will it manage to do this?
Currently, the network uses the “Elliptic Curve Digital Signature Algorithm,” which in short, is the signature that is created from the private key that controls the wallet and ensures only the owner can spend the bitcoin.
Taproot will switch to Schnorr signatures, which combine the public keys to create a new public key, and combine their signatures to create a single new signature. This in turn makes the multi-signature transactions unreadable as it appears as a mono-signature transaction. The new signatures and public keys will help in establishing absolute anonymity as the keys won’t have as much exposure on the network than before.
Once the Taproot update has been integrated, the complex transactions will be displayed as regular, standard, person-to-person transactions. The public transactions on the network will all appear as P2P transactions with no distinction in the complexity.
Furthermore, the Schnorr signatures will enable the facilitation of complex smart contracts. And lastly, it will help in scaling layer-2 payment channels namely, the lightning network enables you to enjoy instant transactions.
The Road from Now to Taproot
In order for the update to be “approved” by the Bitcoin mining community, miners had to signal their support for the update during a dedicated two-week window. The update needed a 90% threshold to go through with the update. The taproot update failed to receive the 90% support several times but finally passed on June 12th.
Why 90%, doesn’t that seem like an exceptionally high threshold? Well, Bitcoin is a global project with a market cap of nearly 1 trillion dollars and millions of stakeholders. Any large scale opposition and controversies can have a dire effect on the economy. Thus, a 90% threshold was agreed upon to ensure change was in sync with the global community. It was during a public meeting wherein community members decided on this proposal called the “Speedy Trial” which called for a 3 month period for miners to pass with a 90% threshold needed for activation.
The update has faced barely any real opposition or resistance, which is a testament to how transparent the update is, in its clear progression for Bitcoin. This is a huge relief seeing the community come together especially after the civil war of 2017, that split the community into Bitcoin and Bitcoin Cash!
What comes next?
At the time, the Bitcoin network was best at performing only direct peer-to-peer transactions and using the Lightning network.
Bitcoin’s functionality and scalability issues have limited other potential applications and advancements. The upgrade will eliminate restrictions and enable Bitcoin to level up its potential for real life applications, much like the Ethereum Network. Bitcoin will someday enable you to pay your phone bill automatically, or even lease your apartment without a third party, and much more complex transactions! The Taproot upgrade will play a large role in increasing Bitcoin adoption not just in finance but as a general technology solution.