Implemented on the 14th of November 2021, the taproot update is a long-awaited one in the Bitcoin community. It represents a major upgrade since the introduction of the SegWit update in 2017. Taproot update promises to bring lots of benefits to the Bitcoin blockchain, including improving privacy, security, and scalability of the blockchain.
If you have been around for a while in the cryptocurrency community, you will agree that these three are major concerns to the Bitcoin network. Bitcoin is not only the first cryptocurrency but it’s also presently the largest. Therefore, there has to be a solution figured out to address these problems. And that’s what the taproot update has come to do.
In this post, we will be taking a deeper dive into the new Bitcoin taproot update to help you better understand what it is, and the kind of improvement it’s bringing to the Bitcoin network. So, let’s get straight into it.
Bitcoin Has Some Major Limitations That Need to Be Addressed
Although Bitcoin is the largest and most popular cryptocurrency out there, the crypto network is battling with limitations in different areas, including slow transaction speed and less privacy for transactions. Although the network has improved so much in popularity and users over the years.
But transaction speed and fees are still one of the biggest challenges facing the network today. Presently, the Bitcoin network only processes about 30 transactions per second, which is far behind what some new cryptocurrencies would do. To address the issue of high transaction fees and low speed, the SegWit update was implemented in 2017. However, it doesn’t look like it brought so much improvement to the network.
Another major limitation facing the Bitcoin network was its privacy. Although Bitcoin claims to be private with transactions on its network, details of all transactions are visible on the network. That means, it is very much possible to know the buying history of a friend by checking out their Bitcoin address.
Therefore, the Bitcoin community has been looking for a way to increase the security of the network while also reducing transaction fees and increasing transaction speed. And the taproot update seems to be the solution we have all been waiting for.
The Bitcoin taproot update
The taproot upgrade is considered the most significant upgrade coming to the Bitcoin network for the last four years – after the SegWit upgrade in 2017. Taproot is a soft fork of the Bitcoin network which aims to increase the privacy, efficiency, and scalability of the network by bringing in smart contract functionality.
With the upgrade, Bitcoin would be able to solidly compete with some other cryptocurrencies like Ethereum, especially when it comes to smart contract functionalities and being able to accommodate decentralized finance (DeFi) and Non-fungible tokens (NFTs) on its network.
Taproot Upgrade Is a Collection of Three Other Upgrades
There are three other separate upgrades that combined to make the Bitcoin taproot upgrade. All three upgrades are, however, meant to happen at the same time. These upgrades are called Bitcoin Improvement Proposals (BIPs). Let’s take a look at what each of the upgrades is and what they are bringing to the table.
- Schnorr (BIP 340): This upgrade proposes the introduction of Schnorr signatures to the Bitcoin network. It will be coming to replace the current cryptography that is being used on the network. The advantage this will be bringing to the Bitcoin network is that it will be making it more secured, faster, and less data-intensive.
- Taproot (BIP 341): This is probably the most popular of the three upgrades – the taproot upgrade as a whole got its name from here. This upgrade proposes Pay-to-taproot, which is a new way of making Bitcoin transactions more flexible and private. It will also improve scalability and also reduce transaction fees on the Bitcoin blockchain.
- Transcript (BIP 342): This is coming to change the scripting language of the Bitcoin blockchain. The new language will enable P2TR transactions. Because it will be using Schnorr signatures too, it will be bringing efficiency and flexibility to the Bitcoin network.
What Does The New Bitcoin Taproot Update Mean To Investors?
Since the release of the new upgrade, investors have been wondering how this new upgrade will affect them. Well, the good news is that the upgrade will be bringing lots of goodies to the Bitcoin network. And because of that, investors too can expect to enjoy a better experience as a result of the upgrade. Let’s take a deeper look into this to see what benefits this might be bringing to investors on the Bitcoin network.
#1: It will increase transaction privacy
This is the first benefit this new upgrade will be bringing – investors will be enjoying more privacy with their transactions. The Schnorr signatures will make it possible to compress multi-signature transactions into just a single, standard one. That way, it will be difficult to distinguish simple transactions from multi-signature transactions. That will, therefore, mean more privacy for multi-signature transactions on the network.
#2: Smart contract functionality
If there is anything Bitcoin needs dearly at this time, it will be smart contracts functionality on its network. It is one feature that has given Ethereum an advantage over Bitcoin for many years. But with the new taproot upgrade, Bitcoin will also be able to host smart contracts on its network.
That will mean a grad introduction of DeFi and NFTs to the Bitcoin blockchain. More developers will also be coming in, especially now that the transaction fees on the Ethereum network are a major concern to many of them. The smart contract will increase the use case of Bitcoin, which is a plus for both the network and investors.
#3: Investors will enjoy faster and cheaper transactions
With the Schnorr signatures, there will be a significant reduction in the amount of data needed to process multi-signature transactions. This will mean transactions will be performed faster and with less energy. Adding all these together, will definitely make transactions cheaper on the Bitcoin network. That’s definitely good news for investors and the Bitcoin community as a whole.
The new taproot upgrade is a long-awaited one in the Bitcoin community. With the upgrade, the Bitcoin network will be experiencing lots of development, including more security, privacy, scalability, increased transaction speed, and reduced transaction fees. Above them, all is the smart contract functionality that will be coming with the new upgrade.
Whether you are a trader, investor, or just a Bitcoin enthusiast, the benefits brought by the taproot upgrade will help you enjoy amazing experiences on the Bitcoin network.