Driven by the misconceptions that regular users have about Taproot and a certain lack of understanding, this essay leverages the technical resources that came before it to enlighten you to the broader implications of what is arguably the most significant upgrade to Bitcoin yet.
By reducing the transaction size and making nearly any transaction appear like a simple, single-signature one, Taproot will also enable larger and more complex operations to be deployed on Bitcoin that were previously unfeasible or almost impossible.
If you only use Bitcoin to hold coins long term and sparingly move them around between wallets, you might think Taproot will have little impact on you.
If transaction outputs were seen differently, they could suffer from discrimination by the receiver, preventing users from using their BTC for payments in certain conditions.
In addition, the Lightning Network and other complex wallets and contracts will enjoy greater efficiency and lower transaction fees, further empowering the usage of Bitcoin as a medium of exchange.
Bitcoin transactions work based on inputs and outputs, which are also equal since coins are not destroyed.
For the former, Bitcoin can’t do much — you can’t send funds you don’t have — but for the latter, Bitcoin will give you the “rest” as change.
Notice that since I received the 5 BTC in full, even if I want to send only 3 bitcoin, I will have to input all the 5 bitcoin into the transaction, and I’ll get the rest back as change.
For that reason, the concept of a wallet is an abstraction intended to make things easier to acknowledge and understand by summing up all the transaction outputs you own.
This author has put “programming” in quotation marks because Bitcoin’s scripting language can more accurately be seen as a verification language than one that provides computation directives.
There are three major constraints when considering Bitcoin Script and how its improvements are made: privacy, space efficiency, and computational efficiency — usually, improving one of these cascades into strengthening the other two.
As a result, users have greater flexibility for creating scripts that increase the resilience of their savings, move funds around more efficiently and privately, and help unleash financial sovereignty.
One clear example of this is multisignature addresses, which once had to be done manually with Bitcoin Script but can now be effortlessly created with a smartphone or a laptop.
Taproot, the latest upgrade to the Bitcoin protocol and arguably the most important one to date, is a natural evolution of the way Bitcoin transactions, and hence scripts, work.
In the early days of Bitcoin, with legacy addresses, the sender of a transaction had to care about the receiver’s wallet policy — its contract, or script — which was not only impractical but represented a significant privacy shortcoming.
With the advent of pay to script hash , Bitcoin changed that dynamic, and transactions started to be sent to the hash of the contract instead of the contract itself.
A hash is the output of a hashing function, which takes a variable-length input and returns an encrypted result of fixed length.
However, the contract had to become visible when spending and all of the spending conditions had to be revealed.
There are two main possibilities for complex Taproot spending: a consensual, mutually-agreed condition; or a fallback, specific condition.
If the condition everyone agrees on is used, Taproot allows it to be turned into a single signature.
However, if a mutual consensus isn’t reached and one party spends the funds using any of the fallback methods, Taproot only reveals that specific method.
By making transactions cheaper, more efficient, and more private, the adoption of Taproot will set the stage for extra functionality to land on the Bitcoin network.
Although some decentralized finance applications and use cases are already being implemented on Bitcoin, the greater smart contract flexibility and capabilities brought by the Taproot upgrade can ultimately allow even more use cases to be implemented and more complex functionality to be deployed while leveraging the strong security assurances of the Bitcoin network — which no other “cryptocurrency” can match.
Novelty networks such as Ethereum lack the monetary properties of the Bitcoin base layer and its security and robustness — part of the reason why most applications built on them have fallen short of accomplishing their value proposition over the long run.
The Taproot upgrade, which also comprises Schnorr, MAST and Tapscript, builds on that foundation by furthering the security and privacy of the base layer and enabling more complex applications to be built on top of it.
If a given functionality can be implemented in Bitcoin, the most robust and secure network, it is only natural that it will.
To learn more about Taproot, Aaron van Wirdum’s technical overview is a good place to start.