What is Bitcoin Taproot Update?

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A week ago on 14th November 2021 at block 709,632, the long-anticipated Bitcoin Taproot upgrade was activated making significant changes to the Bitcoin blockchain and while upgrading some key features to improve privacy, scalability, and security on the network.

So, what were those features, and how these features will impact everyday users hodling or marking any transactions on the Bitcoin network? In today’s blog post, we’ll try to understand the Bitcoin Taproot upgrade in a simple language.

Three Major Bitcoin Improvement Proposals (BIP)

The Bitcoin Taproot upgrade consists of three major Bitcoin Improvement Proposals (BIP) introducing significant changes to the working of the Bitcoin network to improve users’ privacy, security, and scalability. Let’s have a look at these proposals one by one.

What is BIP340?

The first significant improvement proposal is the integration of the Schnorr digital signature scheme in Bitcoin’s core cryptography in addition to the existing Elliptic Curve Digital Signature Algorithm (ECDSA).

In simpler terms, a digital signature is a mathematical scheme for verifying the authenticity of a digital message or a transaction. Thus leveraging the digital signature, the Bitcoin network ensures only the wallet owner can make a transaction from their wallet.

Traditionally, the Bitcoin network used only the ECDSA scheme to generate a public and a private key, thus allowing the user to generate a digital signature to prove ownership of the public key without revealing the private key.

However, the ECDSA scheme has its drawbacks. For example, with the ECDSA scheme, multisig transactions can easily be identified on the blockchain as they reveal multiple public keys and digital signatures. It also leads to additional data load on the network with more information as more parties get involved for a multisig transaction.

Now with BIP340, the network integrated the Schnorr digital signature scheme allowing public key and signature segregation. Thus reducing the network load and increasing user privacy by not revealing information regarding the number of parties involved in multisig transactions.

What is BIP341?

The second BIP, also known as taproot, adds a privacy solution to the Bitcoin network utilizing the Schnorr signatures which we just discussed in the BIP340 proposal above. This proposal enables MAST which allows the encapsulation of various different scripts by summarizing the collection of all possible spending scripts. A script is basically a sequence of instructions that are interpreted by the compiler.

Hence, the BIP341 proposal makes smart contracts on the Bitcoin network more efficient and private by only revealing information about the set of code or scripts that were executed and not all the rest of the scripts that weren’t.

What is BIP342?

The last and final BIP342 improvement proposal known as tapscript updates the Bitcoin scripting language thus enhancing the Bitcoin smart contract capabilities. Tapscript changes the resource requirements by removing the 10,000-byte size limit in the legacy script language and leverages the Schnorr signature to improve the efficiency of signature hashing.

Additionally, the tapscript update also makes it easier for future upgrades of tapscript and extends the signature-checking opcode known as OP_SUCCESS.

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