What Is Taproot, the Privacy-Focused Bitcoin Upgrade?


What is Taproot? It’s not a carrot or a turnip, but a Bitcoin update that promises to keep some transaction details buried deep in the metaphorical soil.

Taproot is on track to be the biggest Bitcoin upgrade since 2017, which led to a hard fork of the network—in which one blockchain splits into two separate ones. Though Taproot isn’t quite as contentious, it’s worth understanding how it will alter the world’s biggest blockchain network.

What is it addressing?

The Bitcoin blockchain is composed of computer code. So, when you send a transaction on it, the “coins” are really connected to a script. These commands tell the blockchain what you can do with them. Usually, that means using a private key to provide a “signature” and prove you are able to spend them.

But people can make more complex transactions (i.e., smart contracts, or code that defines an agreement between a sender and receiver), such as requiring multiple signatures before coins can be spent or mandating a waiting period known as a “timelock.”

When said coins are ultimately spent, those scripts become public on the Bitcoin network, adding a lot of data to an already bulky blockchain, while potentially exposing some details about the people involved in the transaction. Therefore, it makes the job of blockchain tracking firms such as CipherTrace and Chainalysis, and the government agencies to which these firms provide data, a bit easier.

What would Taproot do?

With Taproot, all parties in a transaction can cooperate to make these complex transactions look like standard, person-to-person transactions. They’d do so by combining their public keys to create a new public key, and combining their signatures to create a new signature. It does this through a device called Schnorr signatures.

What are the benefits?

For these specific types of complex transactions, Taproot should enhance privacy while reducing the amount of data needed to make them, thereby lowering transaction costs that have become much higher as Bitcoin has become more popular.

Moreover, the privacy benefit will extend to applications that use time-locked contracts, such as CoinSwap, which mixes Bitcoin transactions to obfuscate the coins’ origin and destination. The same applies to Lightning Network, a second-layer network that bundles transactions together off-chain. These apps, due to Taproot, become more private. As its originator wrote, “I believe this construction will allow the largest possible anonymit set for fixed party smart contracts by making them look like the simplest possible payments.”

Whose idea was it?

Taproot was proposed in 2018 by Gregory Maxwell. Maxwell is a developer for Bitcoin Core, open-source software created by Blockstream, where Maxwell was once CTO. Bitcoin Core is the predominant software client for Bitcoin, meaning it allows individuals to interact with the blockchain. By downloading Bitcoin Core, people can take part in validating transactions on the Bitcoin blockchain.

What’s the current status?

Bitcoin miners—those who mint new blocks on the network—had to literally “signal” that they supported the upgrade during a two-week period. (The “difficulty” of mining Bitcoin adjusts every 2,016 blocks, or about two weeks, depending on how quickly miners are creating new blocks; the goal is to average a new block every 10 minutes.)

In order for the upgrade to go through, 90% of mined blocks during that period needed to include data from the miners known as a “signal bit.” If the threshold wasn’t met, miners had another chance during the next two-week period, up until August 11. After several times failing to hit the 90% threshold, the network’s miners reached the target on June 12, with two months to spare.