The first bitcoin upgrade in four years is called Taproot, and it just activated. The Taproot update means greater transaction privacy and efficiency – and crucially, it will unlock the potential for smart contracts, which can be used to eliminate middlemen from transactions. The enhancement, called Taproot, is the most significant change to the bitcoin protocol since the SegWit (Segregated Witness) block capacity change in 2017. SegWit effectively increased the amount of transactions that could fit into a block by pulling data on signatures from bitcoin transactions.
Right now, the cryptocurrency uses something called the “Elliptic Curve Digital Signature Algorithm,” which creates a signature from the private key that controls a bitcoin wallet, and ensures that bitcoin can only be spent by the rightful owner. Taproot will add something known as Schnorr signatures, which essentially makes multi-signature transactions unreadable, according to bitcoin miner Alejandro De La Torre.
Taproot makes smart contracts cheaper and smaller, in terms of the space they take up on the blockchain. Killeen says that this enhanced functionality and efficiency presents “mind blowing potential.” Currently, smart contracts can be created both on bitcoin’s core protocol layer and on the Lightning Network, a payments platform built on bitcoin, which enables instant transactions. Smart contracts executed on the Lightning Network typically lead to faster and less costly transactions.
Taproot increases privacy by obscuring what type of transaction is being executed. The Schnorr signatures can make more complex transactions on the bitcoin protocol, such as those from wallets that require multiple signatures, look like just any other transaction. This makes transactions more private and more secure.
“Taproot will also introduce MAST (Merkelized Abstract Syntax Tree), which will make it more difficult to trace and analyze Bitcoin transactions,” the Cryptobrief report added. As a result of the upgrade, multi-signature transactions will now be indistinguishable from simple transactions, meaning greater anonymity and privacy for users.
Meanwhile, the Bitcoin price today is $65,839.47 with a 24-hour trading volume of $26,667,305,809. Bitcoin is up by 2.31 percent in the last 24 hours, as per a report by CoinMarket cap.