The Taproot Upgrade: Why It's a Big Deal for Bitcoin
"Explain it to me like I'm 5." Don't worry - I got you!
Photo credit: Gabriel Gurrola (Unsplash)
Hello friends!
Many of you will know I am a humanitarian at heart. I care deeply about the most vulnerable among us and that’s mainly people, wildlife and the environment.
A little while ago, I made a comment saying I was more interested in the humanitarian aspect of bitcoin than I was of the technology. But a friend, who we’ll name Vito, challenged me to explore the depths of bitcoin's technology.
I decided to accept the challenge because to Vito, it’s in the bitcoin technology where the excitement lies, where the revolution lives. It's soil that labours the fruit we all love.
Sooo, I’m excited to dive in and talk about the TAPROOT upgrade! Here we go (and may the force be with me!).
First, a Quick Primer on Bitcoin Transactions!
If you’re new to bitcoin, I want to quickly explain bitcoin transactions & digital signatures.
Have you ever signed a cheque? I'm sure you have. You’ll know that each cheque states:
The amount of money you'd like to send
The name of the person you’re sending money to
Your signature (to confirm this transaction)
Date
In theory, the same idea applies to bitcoin transactions too.
Each transaction holds the following information:
The amount of bitcoin you’d like to send
The address you’re sending bitcoin to (this is called a “public key”)
Date/timestamp (for already approved transactions)
(FYI your signature, called a “private key”, is needed to sign your transaction)
So what’s the difference then? For starters, cheques require pen and paper. I could spend hours trying to forge your signature, succeed, and wipe out your savings.
But with bitcoin transactions, it’s a little (ok, a LOT) harder to do that because it uses cryptography to secure and verify your transaction.
The Problem with Digital Signatures & Bitcoin Today
To create digital transaction signatures, Bitcoin uses a cryptography technology called “Elliptic Curve Digital Signature Algorithm” (ECDSA).
As it turns out, this type of cryptography is a little outdated and requires a lot more data/space on the blockchain.
With ECDSA, the Bitcoin network can tell between different types of transactions. For example, it can tell whether a transaction has a:
Single signature: meaning that most likely it was one person or a single signer approving a bitcoin transaction.
Multi-signature (“multisig”): meaning multiple users or multiple signers are needed to approve a bitcoin transaction. For example, this could be an exchange or a company.
Lightning network: meaning it likely was a small transaction that got removed from the blockchain (in order to lighten up the load on the blockchain).
Soooo…. the fact that the Bitcoin network can differentiate between different types of transactions by their signature type means that it could potentially trace back to the signer of the transaction - the person, the company, etc.
In the world of bitcoin blockchain, you can be as private or as public as you make yourself to be, which is why the bitcoin blockchain is “pseudo-anonymous” and not completely anonymous.
It's like the internet. You are as anonymous as you make yourself to be but most people don’t know how to fly under the radar.
The Solution: the Taproot Upgrade
The Taproot upgrade will essentially do two major things:
Hide transaction type
Introduce a new form of cryptography
Ok, to the first point. The taproot upgrade will allow all transaction signatures - whether they are single, multisig, or lightning network - look the same. Essentially, like single signature transactions.
By aggregating multiple signatures (to make them appear as one signature transaction) it will be hard to analyze down the chain and differentiate between single transaction spends and multisig spends. (AND, in the process takes up less space and less fees. Woop woop!)
Imagine if every house had a lock. You could differentiate the locks by their branding and have a sense of how to break in. But if all the locks looked the same on the outside, while being different in their makeup, then it would be harder to break in! This is precisely while the Taproot upgrade helps to create privacy and security. (Thanks for the example, Jimmy Song!)
To the second point, a new form of cryptography will be introduced. Until now, the encryption technology used was called “Elliptic Curve Digital Signature Algorithm.” The problem is that this encryption process is very complex and intensive and the reason why fees have been a little high.
With the new encryption technology called “Schnorr signatures,” the network will be able to aggregate signatures into one - and according to people contribute to scaling transactions while lowering fees.
This is a major step forward towards more user and merchant adoption.
Final thought
It took years of researching, planning and developing to implement the Taproot upgrade. Not to mention it’s a rare moment of consensus amongst Bitcoin players.
So friends, if you had to take anything away from today’s post, it is that the Taproot upgrade will provide more privacy, better encryption mechanism, more space in the block size and lower fees.
Next time someone tells you “the bitcoin blockchain is old-schooled and just can’t scale” you can talk about the Taproot upgrade... and gently invite them to read this post :)
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