One of the most important updates in the history of bitcoin will be snapped up this weekend

What is Taproot and why is it important?

Put short and as abstract as possible, Bitcoin Taproot is a soft fork optimizes scalability, data protection, and smart contract functionality. One creates a new bitcoin address type which allows bitcoin releases to look similar whether the sender is making a simple payment or a complex, multi-signed transaction, or is using the Lightning Network.

A bitcoin address has the same function as a bank account number in the case of bank accounts, or an email address in the case of an email: it is used to send money to us by sending this address to others.

Taproot addresses also allow users to save on transaction fees – the more complex the spending conditions, the more users save – compared to previous address types. By reducing the size of the transaction and making almost any transaction appear as a simple, single-signature transaction, Taproot also allows you to perform larger and more complex operations on the Bitcoin network that were previously impracticable or almost impossible.

If someone only uses bitcoin to hold the device in the long run and rarely moves it between wallets, they may think Taproot will have little effect on it. In reality, however, the opportunities that this soft fork allows for the future of the Bitcoin network are very significant, as Taproot is laying the groundwork for even more exciting developments on the network.

On the one hand, Taproot enables Lightning Network to reach its full potential as a bitcoin scaling technology. Taproot also provides greater efficiency and lower transaction fees for more complex portfolios and contracts, further enhancing the use of bitcoin as a substitute. Even the most complex transactions between ministries that support Schroorr signatures and support Taproot will incur the same fees as simple ones. Furthermore, this cost reduction and the increased flexibility and capabilities available for smart contracts will ultimately allow for complex options that were not previously feasible on the Bitcoin network.

However, to understand why Taproot is being introduced, we must first understand how the Bitcoin transactions and the improvements to date that ultimately led to Taproot work.

How Bitcoin Transactions Work

Bitcoin transactions are based on inputs and outputs, which are equal in all cases because the coins are not destroyed. For example, if we want to send 5 BTCs, we need to select exactly 5 BTCs, otherwise the transaction would either be incomplete or we would have too much money left.

In the former case, the Bitcoin network can’t do much – we can’t send money we don’t have – but in the second example, Bitcoin returns the “remnant” as a return. If we select 7.38 BTCs to send 5 of them, 2.38 BTCs return to us as “tiny”. So it would be 7.38 input and 2.38 + 5 output, although we would get a little less than 2.38 because the network has to deduct transaction fees.

When we talk about spending, we are referring to an output. Remaining with the previous example, we have sent 5 BTCs that the other party can use as they wish. For example, I can send 3 BTCs to Anna and 2 BTCs to Balázs, or I can send 5 BTCs to Cecilia. You can also choose to keep 5 BTCs indefinitely. Unless you choose to keep it, you will execute a transaction no matter what you use your new bitcoins for. In essence,

that since you have received 5 BTCs in full, if you want to send only 3 BTCs, you will still need to enter all 5 BTCs in the transaction and receive the remainder as a return.

What is essential in this dynamic is the interaction of coins as inputs and outputs. When we spend, we pass a transaction output to another person. For this reason, the concept of a portfolio is an abstraction that aims to make things easier to understand by summing up all the transaction output we own. But that is all there is to it – transaction outputs (UTXO model).

Improving the transaction model

The history of paying in bitcoin has changed a lot since the early days of the network. The UTXO model described above relies on scripts or contracts created using the Bitcoin Script “programming” language. The quotation mark is justified because the bitcoin scripting language is much more likely to be a verification language than a language that provides computational instructions. In essence, bitcoin scripting is a way to specify the conditions for spending UTXO (Unspent transaction output).

There are three main limitations to consider when looking at Bitcoin Script and its development: data protection, space efficiency and computational efficiency – usually the improvement of one of them results in the strengthening of the other two. For example, trying to disclose less information about a transaction and thereby improve data protection would mean sending less data, reducing the space required for the transaction, and making it easier to verify – ultimately requiring less computation.

The community has improved the performance of bitcoin transactions with the gradual introduction of new script or address types. These changes were designed to improve data protection, make remittances easier, and speed up the process of validating transactions.

One example of this is multi-signature addresses, which used to be created manually using Bitcoin Script, but can now be easily created on a smartphone or laptop.

A multiple signature indicates that multiple private keys are required to authorize a bitcoin transaction, rather than a single key signature.

The same is true for Lightning Network, Bitcoin Layer 2’s scaling solution that helps with small and frequent payments. It is now available in mobile apps and allows users to instantly transfer an once impracticable amount of BTC to each other.

Taproot, the latest and arguably most important update to the Bitcoin protocol to date, is the natural evolution of Bitcoin transactions and thus the way scripts work. With Schnorr signatures, MAST and Tapscript, Taproot aims to increase flexibility and privacy without compromising security.

In the early stages of bitcoin, with old addresses, the sender of the transaction had to care about the policy of the recipient’s wallet – his contract or script – which was not only impractical but also meant a significant privacy gap. The contract had to be made visible to anyone when the transaction was sent, so the recipient’s data protection was low.

A pay to script hash (P2SH), Bitcoin changed this dynamic and began sending transactions to contract hashes. This addition to bitcoin transactions not only improved data protection by making all outputs look similar, but also reduced the size of the output, thereby increasing efficiency.

However, the contract had to be visible at the time of the transfer, and all the spending conditions were thus revealed. This approach has two drawbacks: data protection and efficiency. Because any outside observer can learn about the different spending conditions — so you can learn a lot of information about the poet — in addition, the blockchain is swollen by a script that contains unnecessary logic. In practice, it only makes sense to check the spending condition under which the given output was spent.

The Taproot update improves this logic by Merklelized Abstract Syntax Trees (MAST), a structure that will ultimately allow bitcoin to to reveal only the specific spending terms of the contract that were used in the transaction.

In Taproot, spending has two main options: a consensual, mutually agreed condition; or a reserve condition. For example, if a multi-person address with multiple signatures wants to spend certain amounts programmatically, they can set a spending condition that they all agree on, but they can set up backup states in case they can’t reach a consensus.

If a condition is used that everyone agrees on, Taproot will allow it to be turned into a single signature. Because of this, the Bitcoin network won’t even know they’re using a contract, which significantly increases the privacy of owners of titles with multiple signatures.

If no consensus can be reached and one party spends the money using one of the backup methods, Taproot will only explore that method. As the introduction of P2SH has increased the privacy of recipients by making all outputs look the same – just a hash – Taproot will increase the privacy of the sender by limiting the amount of information that enters the network.

Even if someone doesn’t use complex wallet features like multiple signatures or Lightning, improving the privacy of users of such wallets will improve the individual as it makes it more difficult to monitor the blockchain overall and increase the anonymity of the Bitcoin network.

What can come after Taproot?

By making transactions cheaper, more efficient, and more private, Taproot is creating the conditions for additional functionality to be added to the Bitcoin network. As nodes update and users begin to use primarily Taproot addresses, it will be more difficult for blockchain observers to detect and distinguish between sending and receiving parties, and UTXOs will be handled more evenly, and the wider Bitcoin network will have a more robust billing system. it becomes a network that allows complex functions to be built on it.

Layer 2 protocols and side chains have the ability to move up and use even more sophisticated smart contracts to coordinate coins at the base layer. Although some decentralized financial applications and use cases are already being implemented on the Bitcoin network, the greater flexibility and range of options provided by the Taproot update in smart contracts may ultimately allow for more use cases and more complex features while leveraging the strong security of the Bitcoin network. guarantees.

Novel networks such as Ethereum lack the monetary properties, security, and robustness of Bitcoin’s core layer — one of the reasons why most of the applications built on them did not live up to expectations in the long run — writes Bitcoin Magazine. By patiently building the foundations of a distributed, uncensored, and sovereign monetary network, the Bitcoin network can actually achieve long-term functionality and growth through its Layer-based approach.

The answer to the question of whether the new update will also appear on the exchange rate is most likely not. This is because the update was already adopted in mid-June, but will only take effect now, so the market has had plenty of time to price Taproot and the exchange rate has risen nearly 80 percent since mid-June (in which, of course, a number of factors ).

Cover image: Chesnot / Getty Images

Source: – Üzlet by

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