MEXC Research: What Exactly Is Bitcoin’s Taproot Soft Fork Upgrades?

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On June 12, more than 90% of the computation already supports Taproot’s locked-in upgrades, which means that Taproot will be activated when Bitcoin reaches a block height of 709,632 and also means that the Taproot soft fork upgrades activated in November 2021.

Taproot

Taproot was first introduced in early 2008 as a soft fork of the Bitcoin network to enhance Bitcoin’s privacy and scripting capabilities.

Taproot is a set of entirely new Bitcoin scripting structures that define how to use and collect addresses for Taproot-type transactions. The initial concept came from the MAST (Merkel’s Abstract Grammar Tree) proposed by the Bitcoin founders. Thus, Taproot can be considered a special implementation of MAST. With MAST, Taproot can show only the relevant parts of the contract during transactions. It will bring many significant improvements to how Bitcoin transactions operate, such as reduced costs and increased privacy. It will also lay the foundation for enhanced smart contract capabilities and improved lightning networks.

Taproot includes the Schnorr Signature component and the upgrades for Taproot itself. In Taproot itself, when unlocking the asset with MAST, you only need to expose one of the scripts. Hashes can represent the other logic without exposing any further details.

Schnorr Signature

Another upgrade is the Schnorr Signature. Bitcoin scripts are carriers of Bitcoin transactions where the script structure refers to the data structure of the Bitcoin scripts. Schnorr is the signature algorithm, which serves as the foundation and core part of technology. MAST, Taproot, Graftroot, Scriptless scripts, and others are script structures and can make full use of Schnorr to make the most of their capabilities.

Initially, when designing the Bitcoin protocol, Satoshi Nakamoto took into account the signature length, open-source code, patent protection, security verification, performance, and other conditions of the signature algorithm, and finally chose the Elliptic Curve Digital Signature Algorithm (ECDSA).

But in addition to ECDSA, another digital signature algorithm meets these criteria and is also favored by many Bitcoin developers: Schnorr Signature.

The significant advantage of Schnorr Signature is “linear math”, which supports signature aggregation: This algorithm merges multiple signatures in the same transaction into one signature. Thus, when used for multi-signature transactions, this algorithm makes it impossible to distinguish between multi-signature transactions and regular transactions and enhances the anonymity of Bitcoin transactions.

Since the algorithm only exposes one signature and public key, addresses signed with Schnorr have features such as stronger anonymity and super multi-signatures.

Previous Bitcoin scripts exposed some multi-signature details during trades. The figure illustrates the multi-signature address marked in the “Rich List” on the website BitInfoCharts. Bitcoins in the address can be used when two of the three addresses participate in signing.

Taproot’s Upgrade Process

In the past, initiating upgrades on the Bitcoin network has sometimes proved difficult. For example, the upgrade process for Segregated Witness was challenging, with some miners refusing to activate until some users presented them with a controversial ultimatum, that is, users activated the User Activated Soft Fork (UASF).

While discussing the Taproot upgrades, some argued that they should be built into the activation mechanism from the start. At the same time, other developers and users opposed such a solution by saying that this was too radical.

The two sides finally reached a compromise in the form of a “speedy trial”: a speedy trial activation mechanism would give miners three months to demonstrate support for Taproot upgrades. Suppose miners signal their support of the upgrade with 90% of blocks during a two-week difficult period (1,815 of 2016 blocks or more). In that case, Taproot will activate on the 709,632 block and there are expectations that it will be mined in November 2021. Taproot did successfully get its 90% mandate.

A soft fork can be activated in many ways. There are roughly six stages of the Bitcoin protocol upgrade:

· Phase 1: An idea is born, and then the core developers of Bitcoin will start explaining and discussing it via email.

· Phase 2: Submit a BIP (Bitcoin Improvement Proposal) draft, which may be archived through GitHub.

· Phase 3: Core developers discuss proposals in detail via email, covering all technical details or possible issues and challenges.

· Phase 4: Enter the formal development stage and subsequent testing and add functionality to the core Bitcoin client.

· Phase 5: Vote as the network is activated step by step, that is, until final launch.

· Phase 6: Third-party application integration support.

According to Taproot.watch data, as of the night of June 14, more than 98% are ready to participate in Taproot activation, and the Taproot upgrade has progressed to the fifth phase.

Impact of Taproot Upgrades

Impact:

Performance: Reduces the verification workload of multi-signature transactions and may also enable batch verification of multiple transactions, i.e., verifying all transactions at once with aggregate signatures of all transactions in a block, thereby increasing the verification speed of Bitcoins. Because it is based on Schnorr Signature, it also has a “linear” feature that increases the transaction privacy of Bitcoins and allows for lighter and more complex “smart contracts”.

Volume: Aggregate public keys and aggregate signatures reduce the size of multiple signatures, increase the system’s scalability by moving irrelevant data out of the blockchain, and the node will have more bandwidth and less storage.

Privacy: The aggregated public key and the aggregated signature prevent the original public key and signature from being exposed, making it impossible for the outside world to determine whether it is a multi-signature transaction.

Lightning networks: For lightning networks, Taproot will make transactions on lightning networks cheaper, more flexible, more private, or will increase lightning network usage.

Possible challenges:

Technical risk: Possible post-upgrade technical bug issues.

User perception is not strong: for the general user, the usability may not be sufficient; for professional users, institutions, and projects that rely on multiple signatures (such as cross-chain scenarios), it plays a more significant role.

Ecosystem popularity: Upgrading requires relevant ecosystems and institutions to support synchronization.

Wallets and trading platforms: Since the main improvement is on the multi-signature issue, wallets and centralized trading platforms are more likely to stay on the sidelines first.

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