By reading the article “What is Taproot System? ” published in Adaas Investment Magazine, you will get acquainted with the Taproot upgrade for Bitcoin and what are the features of this upgrade in general. This level of familiarity can be enough for you to invest in the cryptocurrency market.
Taproot Update on Bitcoin Blockchain is one of the most important soft forks ahead to increase user privacy for this popular cryptocurrency, which will be activated on block 709,632 of the Bitcoin network.
Bitcoin cryptocurrency is constantly improving its blockchain to be a better choice for users in competition with centralized platforms such as PayPal. In the development of blockchains, three factors, security, scalability, and privacy have the greatest impact on the popularity of a cryptocurrency such as Bitcoin or Ethereum.
The Taproot update is also a big first step in providing a blockchain with better privacy and much higher scalability for the Bitcoin cryptocurrency.
Simply put, Bitcoin users need better conditions to protect their privacy and transaction information. As you know, Bitcoin has been developed under a public blockchain. This means free access to all information on all transactions on Bitcoin’s blockchain.
Although there are some solutions such as Coin Mixers or Coin Join that are offered to increase user privacy in public blockchains, none of them provides a privacy for Bitcoin, like what the Monero coin provides for its users. Of course, the Taproot update can not solve this problem, at the same time, it can be a very big step in the development of privacy for Bitcoin users.
First of all, you should know that the Taproot update is completed in three BIPs, and in simple language, it is done in three steps: Taproot, Schnorr, and Tapscript, so that the miners can get the maximum interaction with this update.
Taproot Update is a soft fork for the Bitcoin blockchain. If we want to explain to you in simple language the difference between soft forks and hard forks, we need an example.
We all know the two cryptocurrencies Ethereum and Ethereum Classic! Ethereum Classic was created when Ethereum Blockchain created a new chain called Ethereum Classic under a hard fork. The difference between a hard fork and a soft fork is just as simple: if an update requires a soft fork, no new chain is created for the blockchain, and if an update requires a hard fork, a new chain is created for that blockchain.
In the Taproot soft fork, time-locking processes and multi-signature transactions become more complex, changing bitcoin cryptocurrency codes. This change makes transactions that use processes such as Multi-Signature unrecognizable, and simply put, there will be no differences between a simple transaction and a multi-signature transaction.
At present (November 3, 2021), when the Taproot update has not yet been implemented on the Bitcoin blockchain, all transactions that use variables such as time locks are fully recognizable, and this calls into question the privacy of users. After applying the Taproot update, the transactions that have used these features will not be different from normal transactions, and in simple terms, their variables have a cover, and this cover helps to hide them.
Now that you know how this update works on the Bitcoin blockchain, it is much easier to understand what are the usages of the Taproot upgrade. Increasing the privacy of users and protecting their transaction information in the Bitcoin blockchain is the main goal of Taproot upgrade.
When transactions use the Taproot upgrade, transactions performed on the Bitcoin Lightning Network are indistinguishable from peer-to-peer payment transactions or transactions within a smart contract. This means hiding bitcoin cryptocurrency scripts variables with the aim of increasing privacy in the blockchain.
Even though, all transactions look like a peer-to-peer transaction, it should not be forgotten that the addresses of the sender and recipient of the transaction can be checked and accessed as before.
With the implementation of the Taproot update, the long-term better use of space for bitcoin blockchain has been considered. After this update, the P2TR and P2TRs outputs become slightly larger than the SegWit update outputs.
In this way, the Bitcoin’s blockchain has the ability to verify and process transactions faster, which ultimately provides better scalability for this blockchain.
The Schnorr Signature is a digital signature that is a viable alternative to the digital signature developed by Satoshi Nakamoto for the Bitcoin cryptocurrency.
Simultaneously with the implementation of the Taproot update in the Bitcoin blockchain to increase the privacy of transactions, another update called Schnorr Signatures will be applied to Bitcoin’s blockchain. One of the most important goals of this update is to provide the Signature Aggregation feature for the Bitcoin.
Satoshi Nakamoto, the main developer of Bitcoin cryptocurrency, has introduced a digital signature for the Bitcoin network called the Elliptic Curve Digital Signature Algorithm. In contrast, the Schnorr digital signature is a viable alternative to the Satoshi Nakamoto digital signature due to its widespread use, popularity among the majority, open-source and more security.
After performing the Schnorr Signatures upgrade on Bitcoin’s blockchain, the network will be able to aggregate signatures. In this way, the network can convert the keys of a complex transaction to a specific signature, and in this mechanism, all the signatures of the users of a transaction are placed in a Schnorr signature.
Surely you all know about the risk of Double Spending or re-spending a transaction on the Bitcoin network. One of the most important uses of the Schnorr Signatures upgrade for Bitcoin’s blockchain security is to eliminate the risk of digital signature forgery and Double Spending on the Bitcoin network.
With the signature aggregation feature provided by the Schnorr Signatures upgrade for Bitcoin cryptocurrency, transaction data volume and the length of signatures and keys are significantly reduced, resulting in a lower fee for the network.
Digital currencies are known as digital money or internet money. These currencies are completely Internet-based and there is no possibility of physical connection with digital currency. A group of digital currencies, Cryptocurrency, the protocol for making and using them is different from other models of digital money.
Bitcoin cryptocurrency is an unsupported digital currency and economic system. In traditional economics concepts, to create a currency such as the US dollar, a backing such as gold or the country’s assets must be introduced as the guarantee of the value of money. Bitcoin innovates economic concepts introduces an unsupported digital currency based on Internet and blockchain technologies.
With the aim of Peer to Peer payment, Bitcoin has succeeded in developing its own blockchain and economic model of earning money through the bitcoin mining process. Bitcoin has also become a popular online currency among Internet users and many financial market investors.
At Adaas Capital, we hope that by reading this article you will be fully immersed in the Taproot upgrade for the Bitcoin. You can help us improve by sharing this article which is published in Adaas Investment Magazine and help optimize this article by submitting your comments