Bitcoin's Taproot Seeks to Boost Smart Contracts and Privacy in Major Upgrade

Bitcoin has completed its long-awaited Taproot enhancement, improving privacy, scalability, and smart contract functionality in the network’s first major upgrade since August 2017.

Taproot was activated on Nov. 14 after receiving support from 90% of the Bitcoin network’s miners and mining pools in June. It went live with block 709,632, which was mined by F2Pool. The upgrade seeks to enhance the scripting capabilities and privacy of the Bitcoin network.

As the first major upgrade since Segregated Witness and the Lightning Network four years ago, Taproot’s arrival has been celebrated as a milestone for unity in the Bitcoin community.

Cryptographic Proofs

Taproot improves the efficiency of the Bitcoin network by drastically reducing the volume of data required to be stored on-chain to complete complex transactions. Bitcoin-native smart contracts previously required a plethora of data pertaining to each public key and interaction involved in a contract’s execution had to be stored as cryptographic proofs on the blockchain.

Taproot was first proposed by former Blockstream CTO Gregory Maxwell in January 2018. Maxwell said a feature called Merkelized Abstract Syntax Trees (MAST) rendered “fancier contract use cases as indistinguishable as possible from the most common and boring payments.” It does so by reducing the amount of transaction data that is stored on-chain to execute smart contracts and complex transactions.

Taproot also improves the efficiency of complex transactions through Schnorr signatures. They bundle multiple signatures required for multi-signature and complex transactions into a single unique key on-chain.

Public Keys

In combination, MAST and Schnorr allow for the multiple signatures, conditions, and public keys underpinning complex transactions to be bundled into a unique public key that appears as a simple payment between two addresses on the blockchain. Further, detailed transaction data can only be accessed by the public keys involved in the transaction.

“[Taproot] will allow the largest possible anonymity set for fixed party smart contracts by making them look like the simplest possible payments,” Maxwell wrote.“It accomplishes this without any overhead in the common case, invoking any sketchy or impractical techniques, requiring extra rounds of interaction between contract participants, and without requiring the durable storage of other data.”

With more space available in Bitcoin blocks, the upgrade is also expected to reduce transaction fees on the network.

However, the full effects of Taproot are unlikely to be felt for some time. Many third-party tools such as wallets have yet to update their products to support the new transactions.

Costly and Clunky

Taproot’s implementation has been celebrated across social media, though some supporters have exaggerated how the upgrade would revolutionize both smart contract functionality and the global monetary system.

Responding, commentator and podcaster Guy Swann explained that “Taproot does not create some huge expansion of smart contract capability.” He emphasized that it makes existing tools “more efficient, private, and easier to make increasingly complex […] where before it was costly and clunky.”

While some critics have highlighted that the scope of Bitcoin’s smart contract functionality pales in comparison to that of Ethereum and EVM-compatible chains, others have argued that restricted functionality serves to enhance the security of Bitcoin’s smart contracts.

ShapeShift founder Erik Voorhees tweeted that Ethereum’s smart contracts feature both greater “complexity” and “attack surface” as a consequence of expanded capabilities. Voorhees argues that Bitcoin’s simpler smart contract functionality will be less vulnerable to attacks from malicious actors compared to EVM-based transactions.

While major centralized exchange Binance briefly signaled opposition to Taproot earlier this year, the road to Bitcoin’s previous upgrades saw the network violently splinter into myriad forks and succumb to extended infighting over which chain was the one Bitcoin to rule them all.