Bitcoin Taproot innovations and possible outcomes
On November 14 the broadly anticipated Taproot upgrade to the Bitcoin network was finally activated. It has brought an easier smart contract protocol together with new tools for boosting privacy, scalability, and security.
What does Taproot mean for an average user? Firstly, it will create better privacy and anonymity in transactions. Secondly, it is designed to bring the transaction fee down. To ensure the above and a number of other benefits for people using the cryptocurrency, Schnorr signatures have been enabled on Bitcoin network. They allow larger, multi-signature transactions to be unreadable, keeping the same amount of privacy for everyone regardless of trade size. Smaller transaction sizes are achieved through data aggregation. This means that signatures involving multiple parties can be “aggregated” into a single Schnorr signature. The development is also supposed to make it easier to handle multi-signature transactions and make them harder to spot among simpler transactions on the blockchain. To lower transaction fees, Schnorr signatures reduce the amount of data needed for multi-signature transactions, thus making them less expensive to process. At the same time, a new scripting language applied called Tapescript provides room for future upgrades to the Bitcoin network in terms of smart contracts.
While the technical abilities of bitcoin have become more robust thanks to Taproot, the price volatility still remains. Days before the upgrade, Bitcoin surpassed an all-time high of $68,000 and the entire crypto market reached a $3 trillion market cap. This new high was likely driven by the hype around the upgrade, although some other factors could also be at play. After the initial hype around Taproot passed, and Bitcoin price fell slightly. Further on the price continued to drop, making it $54,354 at the time of writing.
Regardless of the cryptocurrency price, the upgrade is certainly gaining adherents. Taproot makes the Bitcoin network more attractive for building DeFi protocols to attract incremental user demand. Smart contracts essentially provide the opportunity to really build applications and businesses on the blockchain. It is possible that the apps that had previously flooded Ethereum, will soon be built on Bitcoin’s blockchain as well. Besides, with the Lightning Network in bitcoin, Taproot’s privacy benefits became immediately apparent.
Square’s Cash App is moving forward to integrate support for the Taproot bitcoin upgrade. Quantum, an enterprise-focused blockchain running smart contracts on multiple virtual machines, will support Bitcoin Taproot in the next release.