Bitcoin Taproot

Bitcoin Taproot - Years In The Making

By hifi.bitcoin | HiFi Bitcoin | 13 Nov 2021

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Our world is constantly changing. Technology improves and people and companies develop new ways to interact with one another. Much of the change is positive and has led to a significant increase in wealth and major advances in the standard of living for people around the world. But change just for the sake of change doesn’t always lead to positive outcomes. It’s imperative that any major change be thoroughly vetted prior to implementation to ensure that participants have the greatest chance possible to weigh risks against benefits before putting their lives and livelihoods at risk.

Bitcoin clearly embodies that ethos. Bitcoin has seen several major upgrades over its lifetime, but those upgrades are often years apart and require a significant amount of back and forth between developers, miners, and users before being put into place. And why should it be any other way? After all, Bitcoin was designed to be digital money and currently fulfills that role for millions of people around the world. If your life savings are stored in Bitcoin, you’re going to want to make sure that proposed changes to the blockchain won’t result in the loss of your money.

Bitcoin’s last major upgrade occurred in 2017 and implemented SegWit, which had various benefits, perhaps the most well-known of which was a decrease in the amount of space needed per transaction within blocks of the blockchain. In the intervening years, the Bitcoin community has identified and agreed upon a brand-new set of improvements, collectively known as “Taproot”, that may very well be the most important upgrade to Bitcoin in its history.

Bitcoin Improvement Proposals to the Rescue

Long-time readers will remember when we spoke about Ethereum Improvement Proposals (EIPs) several months ago in the following terms:

Ethereum Improvement Proposals, or EIPs, allow developers and users on the blockchain to propose changes, receive feedback, and, if the network agrees, have them tested and then implemented to improve the functionality of the blockchain as a whole.

Many users may not know however that the EIP process is actually based on Bitcoin Improvement Proposals, or BIPs, that, as one might imagine, occur on the Bitcoin blockchain and predate EIPs by several years.

The Taproot upgrade that will take effect in just a few days includes three separate BIPs: BIP340, BIP341, and BIP342. Each provides unique benefits that build off of one another, so it will be helpful to review all the proposals one by one:

BIP340 (BIP-Schnorr)

Public key cryptography is one of several technologies that enable Bitcoin transactions to occur in a private, secure manner. Up to this point, Bitcoin has used the Elliptic Curve Digital Signature Algorithm (ECDSA) to prove Bitcoin ownership on the network without giving away private information or the Bitcoin themselves. ECDSA has worked just fine, but suffers from a few flaws because it treats multisig transactions (i.e., transactions that require more than one signature) differently than transactions that only require one signature to execute. In a nutshell, multisig transactions under ECDSA:

  • Are less private since multiple public addresses on the blockchain, and the fact that a relationship exists between those public addresses, are revealed.

  • Require more block space for each additional participant (i.e., signature) in the transaction.

BIP340 introduces Schnorr signatures, a similar application of public key cryptography to ECDSA (thus helping to facilitate backwards compatibility). However, Schnorr signatures excel where ECDSA fails: multiple public addresses and signatures on the same transaction can be aggregated into one single signature, vastly improving privacy for transactions with multiple signers and greatly reducing the amount of space needed by multisig transactions within a block on the blockchain.

BIP341 (BIP-Taproot)

When people think of smart contracts, they usually don’t think of Bitcoin, which is unfortunate because Bitcoin’s hard money characteristics enable developers to accrue and retain significant value from the applications they successfully deploy on the Bitcoin blockchain. BIP341 seeks to change the narrative.

This change is similar to what we saw with BIP340 (likely leading to their contemporaneous implementation) in that it also improves privacy and decreases block space requirements. Whereas BIP340 aggregated multiple signatures into one, BIP341 allows for more complex Bitcoin transactions, such as opening or closing a payment channel on the Lightning Network, to look the same as a simple everyday transaction (like sending Bitcoin from one wallet to another) to an outside observer.

BIP342 (BIP-Tapscript)

The final BIP included in the impending Taproot upgrade directly supports the other two, but has a different end goal. BIP342 increases efficiency on the blockchain by allowing signatures to be batched together for verification. Under the current code base, each signature has to be verified individually, which is more time- and energy-intensive than it would be otherwise.

Batching of various signatures for verification will enable a host of applications on Bitcoin smart contracts that are next to impossible currently. For example, Decentralized Autonomous Organizations (DAOs), which are commonly made up of hundreds or even thousands of separate users, will be able to execute signature verification almost as simply as if only a single user needed to be verified.

Bitcoin: Upgrades Done Right

The huge amount of value and the ever-expanding number of users on top of the Bitcoin blockchain requires that any changes to the underlying code be well thought out and thoroughly tested in advance of implementation. Critics and outsiders believe that Bitcoin’s slow review cycles are a bug, but they miss the fact that the thoroughness of Bitcoin’s improvement process ensures that the blockchain remains robust and functional as the years pass.

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