As presented by Decrypt, Taproot is the next big update to the Bitcoin network, which promises to bring more privacy to users and lower transaction costs. Scheduled to be implemented in November 2021, the latest update to the Bitcoin network was suggested by one of Bitcoin Core developers, Gregory Maxwell, in 2018.
In this article from the Bê-a-bá Cripto series , you’ll understand how the community decided to implement Taproot and the main solutions proposed by the update.
What are the current challenges of the network?
Although the Bitcoin network is one of the most popular in the crypto world, this is not without its problems. If exempted, the updates would not be as expected by the community.
According to Decrypt, the blockchain of the main cryptocurrency in the world is composed of a computational code, which is responsible for recording all bitcoin movements made on the network. Therefore, in each transaction, the currencies are linked to a code.
However, for the transfer to be confirmed, the user needs to enter his private key, which works as a type of signature, certifying that he has the amount of bitcoin indicated in the transaction.
This type of transaction is seen as simple, as there are more complex ones, such as stand-alone contracts , for example, that require a greater number of signatures before the transaction is authorized.
When the transfer is confirmed, the blockchain registers it, along with the data present in it, making the information public. However, considering that each transaction has its amount of data and that there are numerous transfers recorded on the network, this ends up making the network overloaded and subject to slow moments.
In addition, according to Decrypt, another issue arises when registering on the blockchain: the information made public may display some details of the users participating in that transaction, which can partially compromise the privacy of the transfer.
With this small privacy gap, the information present in the blockchain can be viewed by blockchain analysis companies, such as Chainalysis, for example, or by government authorities.
With the Taproot update, it will be possible for complex transactions to look more like what are considered standard or simple.
According to Decrypt, Taproot would make this change possible by asking the parties involved in the transaction to combine their public keys, giving rise to a new public key, in addition to the combination of their signatures, which would create a third, through the tool called “ Schnorr ”.
The tool is expected to bring several benefits to the network, especially for those using complex smart contract transactions.
Currently, the Elliptic Curves Digital Signature Algorithm (ECDSA) is used to sign transactions on the Bitcoin blockchain. ECDSA signatures typically weigh 72 bytes, whereas Schnorr signatures are no more than 64 bytes—a 12% size reduction.
And what are the benefits?
After Taproot’s implementation, it is expected an increase in privacy and a reduction in the amount of data linked to these transactions (Image: Freepik)
The two main benefits expected from the update are related to privacy. The first of them, according to Decrypt, concerns transactions considered complex.
After Taproot’s implementation, an increase in privacy and a reduction in the amount of data linked to these transactions is expected. With a significant drop in data for each transaction, the costs of each transfer are also expected to decrease.
The second benefit is related to the privacy of applications that use contracts blocked for a certain period (“time-locked”), which mix the order of transactions in the Bitcoin network to make it difficult to identify the origin and destination of transactions. Therefore, with Taproot, these applications will become more private.
How did the community agree to the update?
The confirmation process of transactions on the Bitcoin network is done through the Proof-of-Work (PoW) consensus protocol . In this process, also called “ mining ”, network users compete with each other to solve the cryptographic problem that allows the transaction to be added to the blockchain.
For Taproot, the miners, meaning those who solve cryptographic problems and insert transactions into the blockchain, had to signal their support for the upgrade. Those who agreed with Taproot, had to insert data known as “signal bit” into the mined blocks.
However, as the network is decentralized and operates through community consensus, the percentage of miners who agreed to the upgrade would have to be 90%.
According to Decrypt, the Bitcoin network community initially had two weeks to reach that percentage, due to the period of adjustments linked to the difficulty of mining the cryptocurrency. However, the community had to extend the deadline several times, as the 90% mark took time to be reached, which only happened on June 12, 2021.
Why is 90% community consensus needed?
The Bitcoin network is a worldwide project that has millions of stakeholders, including users, developers, miners and institutions. Therefore, for significant blockchain changes to happen, it is necessary that the vast majority of stakeholders agree with them.
According to Decrypt, the most common way to get buy-in is through a Bitcoin Improvement Proposal (BIP), which introduces changes to the network protocol code and can be suggested by anyone in the community.
After some disagreements among community members about which proposal would yield the best results, they decided on an adoption suggestion called “Speedy Trial”.
This proposal gave miners a three-month period for them to indicate that they agreed to the upgrade, with a minimum limit of 90% before it could be activated.
Not even Bitcoin pleases Greeks and Trojans
According to Decrypt, Edward Snowden, a former analyst for the US National Security Agency (NSA) who made public the documents showing the agency’s surveillance system, said the network update could worsen privacy.
However, it seems that Snowden doesn’t have much support on the matter, as most of the network’s developers disagree with the former analyst.
What was the last network update?
In 2017, the update “Segregated Witness” (SegWit) – or “segregated witness”, in free translation – was activated on the Bitcoin network. According to Decrypt, SegWit aimed to remove some signature data from transactions in order to “free up” space in the blocks, which would make the blockchain faster.
However, the update did not please everyone, as some pointed out that SegWit was not enough and then started to treat cryptocurrency as an investment vehicle, rather than a practical currency. For them, the blocks of the network would have to be larger, which would allow fast and cheap transactions, as happens with physical money.
This divergence of ideas and lack of consensus resulted in the bifurcation (“hard fork”), in which the blockchain is divided into two distinct chains, which gave rise to Bitcoin Cash ( BCH ).
The Taproot update had less community disagreement than SegWit, and the main point of disagreement this time around was how to make Taproot a reality for community members.