It won’t be long before the long-awaited Taproot makes its appearance in the Bitcoin network. The updates have been in the software for some time, but are activated from block 709.632 for nodes running the latest version of the software. Four years after Segregated Witness went live, enabling the Lightning Network in its current form, among other things, we are now facing the next major update for Bitcoin.
That there is a total of four years between Taproot and Segregated Witness shows how careful people are with Bitcoin’s software. Updates to the protocol are rare and have to jump through a lot of hoops to eventually get baked in. Certainty and patience are two core values that describe Bitcoin well. Nothing can go wrong, because there is a lot at stake. Time to take a closer look at Taproot to see what extra possibilities this will bring us.
A new way to sign trades
The first major additional feature that Taproot entails his so-called Schnorr signatures. This new way of signing makes transactions smaller. In the current format of ECDSA signatures, signing a transaction takes approximately 72 bytes. Signatures with Schnorr, on the other hand, only cost 64 bytes per signature, which is a roughly 12 percent improvement over the current method.
This has the effect that, thanks to Schnorr signatures, we have to pay fewer transaction costs and that the blockchain is relieved. After all, we need to save less data on the network for a transaction. That’s a nice efficiency boost for Bitcoin, but the real value of Schnorr lies in the validation of the data.
In the current format, when a Bitcoin node receives a block, it has to validate every individual transaction and signature and that requires relatively much effort from a computer. Signatures set with Schnorr can be merged and validated with whole loads simultaneously. The more Schnorr signatures we use for transactions, the less we rely on the computing power in the network. Which of course benefits Bitcoin’s scalability.
In addition, the implementation of Schnorr is a big win for people who value their privacy very much. For example, thanks to the way Schnorr works, it is impossible to distinguish between a normal bitcoin transaction and the opening of a channel in the Lightning Network. Something that is currently not possible with ECDSA signature.
Taproot is a win for bitcoin scalability and usability
We are making progress on several fronts with the long-awaited introduction of Taproot. Bitcoin transactions become more efficient and we can send more complex transactions to the network with more privacy. What you may not have known is that a transaction in theory also has a limit of 100 kilobytes. Miners can in principle add a larger transaction to their blocks, but nodes in the network are set up in such a way that they do not pass on transactions larger than 100 kilobytes to miners.
Taproot makes bitcoin transactions more efficient in several ways, thus leaving more room for additional complexity in transactions. In other words, the 100 kilobyte limit can be used more efficiently, enabling things that were unimaginable before Taproot was introduced.
It is not yet clear exactly what this will bring us, but if we have learned anything in recent years, it is that we should not underestimate the inventiveness of bitcoiners. There is a good chance that Taproot, for example, is the starting point for additional possibilities with smart contracts on Bitcoin. So much to be excited about. We are curious what Taproot will bring us in the coming years.
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