The first bitcoin update has started in 4 years. This is a rare case where all stakeholders have reached a consensus, and also an important event for the world's most popular cryptocurrency. Taproot stands for increased privacy and efficiency in transactions. Most importantly, the potential of smart contracts is unlocking and transactions can be carried out without intermediaries.
The bulk of Bitcoin's changes have to do with digital signatures - a kind of fingerprint that a user leaves with every transaction. Until now, the so-called "elliptic curve digital signature algorithm" has been used, which creates a signature from the private key of a bitcoin wallet and ensures that funds can only be spent by the rightful owner. Now the Schnorr signature scheme can be used - it allows you to combine several signatures into one, and simple transactions are indistinguishable from complex ones. In practice, this means saving block space and increasing privacy.
Signature leverage is a game changer for smart contracts, that is, self-executing agreements that are stored on the blockchain. In theory, smart contracts can be used for almost any type of transaction, from monthly rental payments to car registrations. With Taproot, smart contracts turn out to be cheaper as they are actually carried out in a single transaction, and in addition to lower fees, network scalability is increased. Until now, the preferred blockchain for such purposes has been the Ethereum network, but with this update, Bitcoin is becoming a more important player in decentralized finance.
The Taproot concept was first described by Bitcoin Core developer Gregory Maxwell in January 2018. In June 2021, the launch of the update was confirmed , and on October 14, the Bitcoin Core 22.0 client was released with its support. The update was launched today, November 14, 2021 at 08:15, when block 709 632 was mined. Taproot is a so-called soft fork, that is, an update with backward compatibility. This means that the old nodes will continue to work on the network, but they will not be able to use the new features.
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