Taproot gives bitcoin a welcome upgrade
Bitcoin has not had any form of makeover for four years, but now we have an upgrade called Taproot, and it has been approved by miners around the world. CNBC says, “It is a rare moment of consensus among stakeholders, and crypto experts tell CNBC it’s a pretty big deal for the world’s most popular cryptocurrency.”
The new upgrade will not take effect until November and this is what it will do: “it will mean greater transaction privacy and efficiency — and crucially, it will unlock the potential for smart contracts.”
Alyse Killeen, founder and managing partner of bitcoin-focused venture firm Stillmark, told CNBC, “Taproot matters, because it opens a breadth of opportunity for entrepreneurs interested in expanding bitcoin’s utility.”
Changing to Schnorr digital signatures
Digital signatures are an important element of the makeover. Currently, the cryptocurrency uses an “Elliptic Curve Digital Signature Algorithm,” which is created from the private key controlling your bitcoin wallet and ensures that bitcoin can only be spent by its rightful owner.
The Taproot upgrade will change over to use Schnorr signatures, which essentially makes multi-signature transactions unreadable. This should mean greater privacy. Brandon Arvanaghi, formerly a security engineer at crypto exchange Gemini, said, “You can kind of hide who you are a little bit better, which is good.” It will not mean greater anonymity for your bitcoin address on the public blockchain, but “t will make simple transactions indistinguishable from those that are more complex and comprised of multiple signatures.”
Schnorr signatures are also vey beneficial for using smart contracts, and the Taproot upgrade will make smart contracts cheaper and smaller, in terms of the space they take up on the blockchain. Smart contracts can be created both on bitcoin’s core protocol layer and on the Lightning Network, but smart contracts executed on the Lightning Network typically lead to faster and less costly transactions.
Killeen explained, “Lightning transactions can be fractions of a penny…while a bitcoin transaction at the core protocol layer can be much more expensive than that.”
Fred Thiel, CEO of cryptocurrency mining specialist Marathon Digital Holdings, said, “The most important thing for Taproot is…smart contracts.” He added, ” It’s already the primary driver of innovation on the ethereum network. Smart contracts essentially give you the opportunity to really build applications and businesses on the blockchain.”
Ultimately, Taproot will make bitcoin more attractive to DeFi platforms, and it will be interesting to see how the dominant smart contract blockchain Ethereum, handles this.