Bitcoin as we all know is decentralized in nature. So all the transaction done on Bitcoin Blockchain is visible to everyone in the world.
Now let us think for a second that our bank records are visible to the public, wouldn’t that be too scary to think(well bank records already are accessible by the government and the bank itself for no reason, but let us just assume it isn't for once).
Up until Taproot, that was the case with Bitcoin(not entirely). If in case someone can tie your real-world identity with your public key address on the Bitcoin blockchain then they can easily screen through all the transactions you have done in the past and also monitor your future transactions very easily as well without any restrictions. This is a major issue of privacy as an individual's financial profile is at risk in this case. Keeping this in view, a few major upgrades to the bitcoin network was proposed and implemented in 2017 i.e. the Taproot Upgrade.
“So why not beforehand Satoshi Nakamoto built the Bitcoin Network this way i.e with Taproot?” Well to be frank the bitcoin without Taproot is(or was) also quite pseudonymous in nature itself and also during the time of 2009-11, no one would have thought that these could be backtracked to reveal sensitive information. But with the increasing skillsets of developers and hackers, they were able to find this loophole and some might have exploited it too. For this and some other reasons as well Taproot Upgrade was proposed by the Bitcoin Community.
We will talk about them in detail in this series of blogs.
So the Taproot implementation is no child’s play in itself. To understand it fully around 3 BIPs(Bitcoin Improvement Proposals) were released which cover all major changes that were proposed in order to fully implement Taproot such as:-
As mentioned in the BIPs itself that “Combining all these ideas in a single proposal would have been an extensive change, been hard to review, and likely miss new discoveries.” So the developers have made some tradeoffs between functionality and scope and struck a balance by focusing on the structural script improvement provided by Taproot and Merkle Branches. (Sounds very Technical!!!!??Yeah I know)
Let us look at some critical advantages that Bitcoin Taproot Upgrade aims to provide:
- Previously In bitcoin, the transactions done by a person and a script were easily distinguishable i.e. whether a transaction was done by a person/script to another person/script can be known by seeing the outputs in general. This was solved by Taproot as it lets us merge pay-to-pubkey and pay-to-scripthash policies and makes all the outputs spendable by either a key or a script in turn making them indistinguishable.
- Another advantage of Taproot is apparent where the applications involve outputs that could be spent by all parties agreeing. For example- In CrowdFunding where after hitting a certain goal amount the money will be released to the person raising funds otherwise, it will be reverted back to each spender. So for this feature to work, we require Schnorr Signatures(from BIP-340) as it permits key aggregation i.e. construction of a public key from multiple participants’ public key which requires cooperation between all the participants signing(which was not Possible through ECDSA). Now because of Taproot, such multi-party transactions are indistinguishable from single-party transactions which are both efficient and private.
A Twitter user has covered everything about Taproot in a single post.
I have tried to keep this blog short so that we can understand some of the critical topics easily. This will be a series of blogs regarding “Taproot Upgrade” so do keep an eye out for the blogs by signing up for my newsletter.
Thanks for reading, Pk signing off.