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In 2017, the Segregated Witness (SegWit) soft fork was completed and it was the last upgrade to the Bitcoin network so far. It was also a controversial upgrade that led to a hard fork (Bitcoin Cash was born). However, Taproot is supported by the vast majority of miners and is expected to be activated via soft fork on November 16 of this year.
Taproot includes three Bitcoin improvement proposals (BIP) that improve network privacy, security, and scalability (scalability is, to put it simply, the number of transactions per second that the network can handle):
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BIP340 present Schnorr digital signature system in addition to the current Elliptical Curve Digital Signature (ECDSA) algorithm. In short, Schnorr reduces Bitcoin’s data load, improves privacy, and speeds up transaction verifications. Cryptographers generally agree that Schnorr is better than ECDSA in almost every area, with virtually no compromises.
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BIP341 present Taproot – an improvement in confidentiality which makes smart contracts more efficient and private (For example, only the relevant parts of the contract will be revealed. Today, all information is revealed, even that concerning the parts of the contract that have not been fulfilled).
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BIP342 present Tapscript – a reformed version of the Bitcoin scripting language that allows schnort / taproot transactions and facilitates future Bitcoin upgrades.
These improvements will result in cheaper transactions and allow for the creation of complex smart contracts. But their main feature is make multisig transactions and complex smart contracts indistinguishable from standard transactions via key aggregation (this will also solve the main Lightning Network issue – privacy).
Why is it called pivot?
(A) is how it works today, (B) is how it will work after activating Taproot. Signature verification is the most computationally intensive operation in a script because signatures are verified individually (A). By enabling batch verification of signatures (B), Bitcoin can achieve its efficiency improvements. This will open up the possibility of Bitcoin-based Decentralized Autonomous Organizations (DAOs) and other Decentralized Finance (DeFi) applications..
It’s also worth pointing out that if Taproot were active and widely adopted in April, when bitcoin transaction fees hit an all-time high, it likely would have allowed everyone to successfully transfer any number of bitcoins.
TLDR: Taproot will increase the number of transactions per second that can be done on Bitcoin, improve network security and privacy, enable complex DeFi smart contracts, and help solve Lightning Network’s main problem by increasing its privacy. Taproot improves Bitcoin’s viability not only as a store of value, but also (most importantly) as a medium of exchange.
More information can be found here: https://kraken.docsend.com/view/9e9y7may8526z934
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