What is Taproot? It's not a carrot or a turnip, but a Bitcoin update that promises to keep some transaction details buried deep in the metaphorical soil.
Taproot, which went live in November 2021, was the biggest Bitcoin upgrade since 2017. That upgrade led to a hard fork of the network—splitting the Bitcoin blockchain in two. Though Taproot wasn't quite as contentious, it's worth understanding how it altered the world's biggest blockchain network.
What was addressed?
The Bitcoin blockchain is composed of computer code. So, when you send a transaction on it, the "coins" are really connected to a script. These commands tell the blockchain what you can do with them. Usually, that means using a private key to provide a "signature" and prove you can spend them.
But people can make more complex transactions (i.e., smart contracts, or code that defines an agreement between a sender and receiver), such as requiring multiple signatures before coins can be spent or mandating a waiting period known as a "timelock."
When said coins are ultimately spent, those scripts become public on the Bitcoin network, adding a lot of data to an already bulky blockchain, while potentially exposing some details about the people involved in the transaction. Therefore, it makes the job of blockchain tracking firms such as CipherTrace and Chainalysis, and the government agencies to which they provide data, a bit easier.
What does Taproot do?
With Taproot, all parties in a transaction can cooperate to make these complex transactions look like standard, person-to-person transactions. They'd do so by combining their public keys to create a new public key and combining their signatures to create a new signature. It does this through a device called Schnorr signatures.
What are the benefits of Taproot?
For these specific types of complex transactions, Taproot should enhance privacy while reducing the amount of data needed to make them, thereby lowering transaction costs that have become much higher as Bitcoin has become more popular.
Moreover, the privacy benefit extends to applications that use time-locked contracts, such as CoinSwap, which mixes Bitcoin transactions to obfuscate the coins' origin and destination. The same applies to Lightning Network, a second-layer network that bundles transactions together off-chain. These apps, due to Taproot, become more private.
55% of all the #Bitcoin hashrate is now signalling support for the Taproot upgrade.
— Documenting Bitcoin 📄 (@DocumentingBTC) May 4, 2021
As its originator wrote, "I believe this construction will allow the largest possible anonymity set for fixed-party smart contracts by making them look like the simplest possible payments."
Whose idea was it?
Taproot was proposed in 2018 by Gregory Maxwell, a developer for Bitcoin Core, open-source software created by Blockstream, where Maxwell was once CTO. Bitcoin Core is the predominant software client for Bitcoin, meaning it allows individuals to interact with the blockchain. By downloading Bitcoin Core, people can take part in validating transactions on the Bitcoin blockchain.
How did Taproot go live?
Bitcoin miners—those who mint new blocks on the network—had to literally "signal" that they supported the upgrade during a two-week period. (The "difficulty" of mining Bitcoin adjusts every 2,016 blocks, or about two weeks, depending on how quickly miners are creating new blocks; the goal is to average a new block every 10 minutes.)
In order for the upgrade to go through, 90% of mined blocks during that period needed to include data from the miners known as a "signal bit." If the threshold wasn't met, miners had another chance during the next two-week period, up until August 11. After several times failing to hit the 90% threshold, the network's miners reached the target on June 12, with two months to spare.
Bitcoin is a global project with millions of stakeholders, including developers, miners, institutions, and individuals. As such, there needs to be broad buy-in for substantive changes.
The standard process for getting buy-in is to submit a Bitcoin Improvement Proposal (BIP). BIPs include code changes to the Bitcoin protocol and can be put forward by anyone.
Some wanted to move forward with BIP9, which made the upgrade contingent on miner support. Others threw their weight behind BIP8, which would push through the update with or without miners' support—though there was little resistance.
Community members, in public meetings, ultimately decided on a proposal for adoption called "Speedy Trial," which gave a three-month period for miners to signal with a 90% threshold needed for activation.
Bitcoin Core developer Luke Dashjr caused a small stir when he stood in opposition to Speedy Trial, insisting that consensus had been reached on BIP8. Dashjr created client software that allowed node operators to activate Taproot early.
buyer beware https://t.co/shHLy0VBFC
— Steve Lee (@moneyball) April 16, 2021
Bitcoin developer Matt Corallo referred to it as an "unaudited fork of Bitcoin Core with consensus-divergent rules" and "a great way to end up with two different Bitcoin tokens and confusion as to what it is."
Who doesn't support Taproot?
Edward Snowden, the former National Security Agency contractor who blew the whistle on a U.S. surveillance program, told Ethereal Summit in May 2021 that Taproot could actually make Bitcoin privacy worse. Most Bitcoin developers disagreed with this assessment. By and large, the proposal was popular as it makes Bitcoin a bit more like digital cash with few perceived drawbacks.