Why Taproot Is An Important Addition To Bitcoin
Taproot activation is a fantastic step forward for the Bitcoin network in terms of security and scalability.
A Bitcoin Core developer by the name of Gregory Maxwell released the notes for Taproot in 2018. The last upgrade was SegWit in 2017, and Bitcoin had a whole civil war over block sizes — the amount of data stored in each block. Why does any of this matter, and should you sit down? I’m offended you haven’t already.
Get To The Point
It hurts when you talk to me like that. One of the biggest advancements in the addition of Taproot is the batching of signatures with Schnorr Signatures (BIP 340). This isn’t a technical walk-through, but through a feature called “key aggregation,” multisig transactions can get batched together making it much harder to distinguish between single and multisig transactions. How does that help? Two big ways:
· Sorry technical analysis guys…but not allowing the easy distinguishability between these transactions makes it far harder to determine on-chain heuristics, and provides an obvious higher level of privacy.
· Scalability meets privacy.
The Lightning Network
In a quick summary, the Lightning Network is a Layer 2 built on top of Bitcoin that batches transactions together in something called a “channel.” Each channel can have as many transactions, or signatures as it wants and can be closed at any time. Once the channel is closed, all of those signatures pile onto the blockchain and can cause congestion. In essence, the scalability could have an inverse effect of congestion.
Not anymore, bucko. Multisig vaults (over 1000 signatures) can be sent as one transaction instead of tens, hundreds or even more. I think Gregory Maxwell said it best in his proposed upgrade:
“One point that comes up while talking about Merkelized scripts is can we go about making fancier contract use cases as indistinguishable as possible from the most common and boring payments. Otherwise, if the anonymity set of fancy usage is only other fancy usage it may not be very large in practice.”
We’re making fancy smart contract use indistinguishable from single-signature transactions. This not only cuts down on network congestion, but less transactions mean less fees, which in turn brings even more scalability to the network because there’s a financial incentive. As a note, verifying signatures one-by-one utilizes the most computational intensity throughout the process of a script.
Why Is Any Of This Important?
Because we as Bitcoiners…eat crayons. The Block Size Wars led to an eventual hard fork of Bitcoin because some thought that the only way Bitcoin could ever scale was if the blocks could contain more data in them in order for the protocol to handle more transactional velocity. The obvious retort to this position being if the blocks are too large, it creates a barrier of entry for node operators because of higher costs in equipment, which leads to centralized control of the network by those that can afford to maintain larger amounts of data.
This entire debate is now rendered moot because Bitcoin was always meant to scale off chain. Allowing a low- to no-cost Layer 2 like Lightning to batch transactions by the hundreds, if not thousands, is an immense accomplishment towards scalability and drastically drives down network congestion as mentioned earlier.
Is This The Only Thing Taproot Does?
Not by a long shot. Batching multisig transactions with single-signature ones for privacy and scalability was simply the initial intention. The philosophy of low-time preference prevails. First, let’s talk about BIP 342.
Tapscript (BIP 342) removes the legacy 10,000-byte size limits of smart contracts. I’ll say it again. There will no longer be a data size limit for smart contracts, and the code Bitcoin developers use can be changed/upgraded on a continual basis allowing for easier programming. DeFi applications will begin trying out our side of the pond.
Much of the hype of other protocols that focused on scalability and smart contract applications sacrificed the security and decentralization of their platforms to meet first-to-market demand in order to scale quickly. This led to massive DAO hacks and inevitable centralization; then this particular project was brought to an irrevocable light. This happened because the focus was growth, not security.
Bitcoin has always moved slowly. As mentioned earlier, SegWit was the last upgrade in 2017. We make decisions in Bitcoin slowly because we have extensive vetting processes and we test, retest, test again and then give it another go after we take a nap. We do not sacrifice the integrity of the protocol, sovereignty, or true decentralization for the sake of speed because scale was never meant to happen on chain. Any attempt to be dismissive towards these ideals has been met with callous resistance, and will continue to be so.
What Else Does It Do?
Oh, dear reader, pushy today aren’t we?
Taproot (BIP 341), for which the soft fork is named, allows those fancy Schnorr Signatures to use MAST (Merkelized alternative script trees). The Merkle trees in MAST allow smart contracts to only reveal conditions of a contract that were met, and none of the conditions that weren’t met. This allows for efficiency due to less computational resources spent determining all conditions and greater privacy.
With these three upgrades, what does all of this mean?
The Long HODL
Bitcoin exhibits low-time preference at all times. Some time near 2140, the last bitcoin will be mined. A concern is that the absence of block rewards may not be enough to incentivize miners to maintain their positions.
Taproot incentivizes the process of CoinJoining (multiple wallets pooling together for one transaction) by allowing greater privacy with the Schnorr signatures, which will eventually replace the legacy format and SegWit, as Schnorr signatures are essential in the aggregation of keys into a single-signature transaction.
This process of CoinJoining for the sake of privacy could lead to higher fees on-chain, providing a reason for miners to continue confirming transactions, after all of the remaining bitcoin has been mined.
Scalability was achieved without sacrificing security or privacy, and we also managed to improve on both. The decentralized cooperative action of Bitcoin continues to amaze as we watch the culmination of thousands of hours of sweat equity take flight.
Tapscript gives the developers of a coming age the unlimited tools necessary to truly build on Bitcoin.
In all of this winning, I’ve failed to mention the cons of Taproot, and that is because there are barely any worth speaking to. The resistive nature of Bitcoin has tested this into the ground, and failed to launch twice already. The third attempt was completed in June of this year and signaled a six-month period before activation. Once again, Gregory Maxwell said it best:
“It turns out, however, that there is no need to make a trade-off.”
There need not be a reason to sacrifice security or privacy for the sake of scale or adoption, and Bitcoin has proven that it can be done, and managed it without a central authority.
To underplay the achievement of Taproot is not only dismissive of the hard work of Bitcoiners across the world, but it is also exactly what I expect Bitcoiners to do.
This is a guest post by Shawn Amick. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.