Everyone is talking about BTC ETF but Bitcoin is also about to be upgraded for the first time in 4 years. What is Taproot.

In 2017, Segregated Witness (SegWit) soft fork was performed and it was the last upgrade to the Bitcoin’s network until today. It was also a controversial upgrade which lead to a hard fork (Bitcoin Cash was born). However, Taproot is supported by the great majority of miners and it is expected to activate via soft fork on November 16th this year.

Taproot includes three Bitcoin Improvement Proposals (BIPs) that improve network’s privacy, security and scalability (scalability is, to put it simply, how many transactions per second the network can handle):

1. BIP340 introduces Schnorr digital signature scheme on top of the current Elliptic Curve Digital Signature Algorithm (ECDSA). In short, Schnorr reduces Bitcoin’s data load, improves privacy and speeds up transaction verifications. Cryptographers generally agree that Schnorr is better than ECDSA in almost every way with virtually no trade-offs.
2. BIP341 introduces Taproot – a privacy improvement that makes smart contracts more efficient and private (e.g. only relevant parts of the contract will be revealed. Today, all information is revealed, even that regarding the parts of the contract which weren’t fulfilled).
3. BIP342 introduces Tapscript – a reformed version of Bitcoin’s scripting language that enables schnort/taproot transactions and makes future Bitcoin upgrades easier.

Those improvements will result in cheaper transactions and will enable creating complex smart contracts. But their main feature is making multisig transactions and complex smart contracts indistinguishable from standard transactions via key aggregation (this will also tackle the main problem of the Lightning Network – privacy).

Why is it called Taproot?

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(A) is how it works today, (B) is how it will work after Taproot activation. Signature verification is the most computationally intensive operation in a script because signatures are verified individually (A). By allowing for signature batch verification (B), Bitcoin can realize its efficiency improvements. This will open up the possibility of Bitcoin-based Decentralized Autonomous Organizations (DAOs) and other Decentralized Finance (DeFi) applications.

It is also worth pointing out that if Taproot was active and widely adopted in April, when bitcoin transaction fees reached an all-time high, it would have most likely allowed everyone to successfully transfer any number of bitcoins.

TLDR: Taproot will increase the number of transactions per second that can be made on Bitcoin, upgrade the network’s security and privacy, enable complex DeFi smart contracts and help with the main issue of Lightning Network by increasing its privacy. Taproot improves Bitcoin’s viability not only as a store of value, but also (especially) as a medium of exchange.

More information can be found here: https://kraken.docsend.com/view/9e9y7may8526z934