History of Taproot
Taproot is the name for the newest actualisation of the Bitcoin network. It was introduced by Gregory Maxwell at the end of January 2018 and ever since then, huge bulk of Bitcoin core developers has been working on it.
In June 2021, the developers have finally brought the version of Taproot that was tested and included various upgrades, which we will talk about in a bit. Yet, the consensus of the whole network was needed, for which a mechanism of “Speedy Trial” was used. Speedy Trial is simply a method, during which miners signal their preparedness for the upcoming upgrade in the mined blocks. If the consensus of the network is above 90 %, the upgrade will be locked in and activated in due time.
And that is exactly what happened with Taproot. The miners signalled their preparedness with over 90 % of the blocks, leading to Taproot activation with the block number 709 632, which was mined on Saturday. What does that mean for Bitcoin?
What is Taproot?
Taproot is a soft fork of the whole network, which helps with numerous improvements of Bitcoin. Most notably it should help with lower transaction fees, higher speed of transactions, better smart contract programmability or improved privacy. How does Taproot achieve all of that?
It does so by introduction of two major concepts. First one is MAST (Merkelized Abstract Syntax Tree) which is a rather complicated technological concept that mostly deals with hashing. This improvement however helps with privacy and smart contract programmability on top of Bitcoin network. Simply said, MAST helps with the efficiency and privacy of the smart contracts.
The second and probably even more crucial improvement is the introduction of Schnorr signatures to Bitcoin. Allegedly this is something that even Satoshi Nakamoto was planning to do, however, at that time there were problems with patenting rights which should be a reason why he deviated from this idea. Yet, Schnorr signatures are introduced to Bitcoin now thanks to Taproot and their impact should be mostly seen on different Layer-2 solutions such as Lightning Network or Liquid.
Schnorr signatures should primarly help with complex transactions. These can be for instance different multisigs (multi signature transactions) or opening and closing of Lightning Network channels. In case of Schnorr signatures, all of these transactions will be perceived by the network as simple transactions, essentially improving the privacy. Moreover, since they will be mostly dealt with as simple transactions, the transaction costs will be lowered and the speed of transactions should increase as well.
The story does not end here
The overall effect of Taproot should thus be mostly improvement of the privacy as well as scalability and usability of the whole network. Yet, many core developers have pointed out that while the Taproot activation is a great success, the real benefits will be only seen once that platforms/wallets/protocols will be building on the Taproot soft fork. Until then, Taproot is merely a minor adjustment.