What Is Taproot and How Does It Benefit Bitcoin?

What is Taproot? The first Bitcoin update in 4 years, what is good about it and how it will affect the further development of the cryptocurrency.

The most significant network improvement to be made to Bitcoin in the last five years, Taproot, also known as SegWit version 1, was put into place in November 2021. This update was aimed to speed up and reduce the cost of transaction processing by streamlining it.

The most recent modification to the network of the BTC resulted in a “civil war” of sorts and the invention of a completely new crypto currency, Bitcoin Cash (BCH). The Taproot update is not contentious, though, signaling the beginning of a new Bitcoin era. 

So, what is Bitcoin Taproot, and what can you expect from it? Let’s dive into this deeper and define Taproot. 


What is Taproot? 

At the center of Taproot is a technique known as Schnorr Signatures that replaced the previous Elliptic Curve Digital Signature Algorithm (ECDSA). Satoshi Nakamoto, the anonymous Bitcoin creator, used ECDSA to create Bitcoin since Schnorr Signatures was still patented. 

Taproot improves multi-signature and scripted transactions – special transactions signed with several keys. Previously, these transactions were not easily recognized by blockchain analytic companies. Taproot gives multi-sig and scripted transactions a custom wallet-to-wallet appearance, significantly improving their privacy and minimizing their size.  

The blockchain upgrade also introduces some scripted conditions that must be achieved for transactions to be finalized and improves scalability. This means that more transactions are verified per block than they previously were. In other words, it is now easier to verify every node. This sounds well for the Bitcoin blockchain in the long term.  

Besides, Taproot introduces a new address to the Bitcoin network. Previously, blockchain addresses started with ‘bc1q,’ but now they have a ‘bc1p’ initial. The upgrade also introduces Point Time-Locked Contracts (PTLC) to the blockchain network. These contracts streamline Lightning Network’s privacy and reduce the cost of running a Lightning channel. 

Easy speaking, Taproot’s definition sounds like ‘an upgrade to Bitcoin which introduced several new features’. 

The Importance Of Taproot’s Impact

The benefits above clearly show that Taproot is an essential Bitcoin update since the Segwet update, implemented in 2017. The presence of a few Bitcoin updates illustrates one of its primary characteristics: It is robust. 

Upgrading the Bitcoin protocol successfully is quite challenging. Remember, there is no central authority or individual to push changes through. The Bitcoin community is the one that gives consensus, and reaching consensus in a diverse and decentralized group of contributors is quite troublesome. Therefore, even the simple fact that Taproot was unanimously backed shows its significance in the evolution of blockchain technology.

The Benefits of Taproot

Taproot upgrade improves Bitcoin’s functionality and broadens its market. This sounds good, especially for those interested in BTC prospects and valuation. However, the real benefit of Taproot for the investing community generally is that it reminds us that Bitcoin, as well as other cryptocurrencies, is an evolving technology. 

Some crypto investors regard Bitcoin as a store of value, while others see it as a means of transferring value. These two groups of people overlook BTC’s most significant characteristic – Bitcoin is a new technology that is a work in progress. When you purchase precious metals like silver, you don’t even think about how they will evolve ten years from now. Contrary to this, Bitcoin keeps on evolving.

Technological upgrades come with their own risks – the introduction of bugs and other unplanned consequences. This explains why Bitcoin upgrades are rare and far between since they must be carefully evaluated and tested. Additionally, a consensus is hard to achieve since there is no central authority or individual to approve upgrades solely.  

However, a mutual consensus comes with its positives. BTC has a market capitalization of almost $1 trillion, excluding the valuation of other businesses devoted to supporting the Bitcoin blockchain. Therefore, the risk must be reduced to almost nil.  

Taproot demonstrates Bitcoin as a good store of value that can create good returns for investors. Bitcoin also offers an opportunity for investors to dive in early into transformative technology investment. It can be compared to staking in a startup with a lot of potential but improved liquidity and no paperwork. 

How Taproot affects Bitcoin the cryptocurrency 

As the Bitcoin blockchain scales and becomes more effective at verifying transactions, it is more likely to become an efficient medium of exchange. Previously, Bitcoin’s value was pegged on its utility as a store of value. Thus, it is likely for its value to increase as transactions become faster and more cost-effective. 

Mining revenue will reduce significantly when all the 21 million Bitcoins are mined. Transaction charges will make up the majority of the miner revenue. The Taproot upgrade brings this important step closer by reducing block sizes and enhancing the verification speed on the Bitcoin blockchain.

How Taproot affects Bitcoin the cryptocurrency

Final thoughts about Taproot

From the above discussion, we have seen that Taproot:

  • Enhances privacy: It makes complex processes, especially those that require multi and scripted signatures, indistinguishable from other on-chain transactions. 
  • Minimizes fees: The upgrade reduces the data size of complicated transactions, minimizing the transaction costs further. 
  • Better flexibility: The Taproot signature improves smart contract efficiency, making it ideal for users to introduce more complex requirements for a transaction.  
  • Lightning boost: The upgrade makes Lightning Network transactions cost-effective, more flexible, and private. 

Taproot Bitcoin not only enhances BTC’s usability but will further broaden its market share and potentially its value in the long run. It reminds the world of Bitcoin’s primary feature that seems to have been overlooked in the current market-based narratives. Bitcoin is still in its infancy stages, and its potential goes beyond its supply limit, inflation resistance, and decentralization.


Who made Bitcoin taproot?

The three Bitcoin Improvement Proposals (BIPs) that made up Taproot were written by Pieter Wuille. Developers Tim Ruffing, A.J. Townes, and Jonas Nick joined the project in 2020 and collaborated with Maxwell and Wuille on putting the update into practice.

What does Bitcoin Taproot do?

With Taproot, the Bitcoin network has been upgraded to allow for more secure and private transactions while also enhancing scalability. Taproot, which consists of a number of modifications that modify how transactions are processed, also helps open up new features on the Bitcoin network.

When was Taproot suggested?

Gregory Maxwell, works as an engineer in software development company, first suggested Taproot in 2018. Three years later,  the update was prepared for use.

Do smart contracts work with Taproot?

Taproot makes it possible for a wide variety of smart-contract transactions to show up on the blockchain as “simple” transactions. Taproot enables smart-contract transactions to pass as normal transactions amid the majority of basic transactions by masking a transaction’s real nature.

Watch video

Bitcoin Upgrade: Taproot Explained
Leave a comment

My Newsletter

Sign Up For Updates & Newsletters