The biggest upgrade to bitcoin since 2017, also known as Taproot, has just activated. The Taproot update is said to improve both the privacy and efficiency of transactions.
The Taproot upgrade brings with it the first changes to bitcoin in over four years. Taproot is comprised of three key Bitcoin Improvement Proposals (BIPs).
The upgrade was proposed in the second quarter of this year, being officially approved following support from 90 per cent of miners. The last upgrade was in 2017, known as Segregated Witness or SegWit.
One of the major alterations will concern the use of digital signatures. Digital signatures are used in cryptocurrency so individual users may personally approve transactions. Until now, bitcoin used what was known as the Elliptic Curve Digital Signature Algorithm (ECDSA). ECDSA would create a unique signature from a user’s bitcoin wallet so that only the owner, with their own private key, could access and spend its contents.
Now, bitcoin’s Taproot upgrade will introduce Schnorr signatures. The new digital signature is said to boost the privacy and security of transactions, with Schnorr enabling more complex transactions known as “smart contracts”.
Smart contracts are self-executing contracts with inherently coded terms of agreement between the buyer and seller. These smart contracts can allow the smooth process of transactions without intermediary interference. As a result, transactions become much more efficient and can be conducted more privately.
“Taproot is an upgrade that will improve bitcoin’s capacity for scripting, bringing it in line with competing blockchains like Ethereum that already have programmable smart contracts,” wrote crypto research company Cryptobriefing.
According to Coindesk, the upgrade will “giv[e] developers an expanded toolbox to work with as they continue to ideate, iterate and build”.
Schnorr signatures will mean that multi-signature transactions (such as in the case of smart contracts) will be unreadable and therefore untraceable. While not all bitcoin transactions will become inherently more private, the enhanced anonymity of specific complex transactions could be of comfort to buyers and sellers.
“You can kind of hide who you are a little better, which is good,” bitcoin mining engineer Brandon Arvanaghi told CNBC.
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