Bitcoin implemented one of the most important upgrades on its network since its inception in November 2021. Termed Taproot, the upgrade streamlined transaction processing and made them more efficient in speed and cost. The last change to the cryptocurrency’s network ended in a “civil war” of sorts and resulted in the creation of Bitcoin Cash, a new cryptocurrency. However, the Taproot upgrade was not a contentious one.

Here is a brief primer on Bitcoin’s Taproot upgrade.

What Did the Taproot Upgrade Do?

Quite simply, the Taproot upgrade batched multiple signatures and transactions together. Digital signatures are required on Bitcoin’s network to verify transactions. They are generated using private keys and are validated against public keys.

Before Taproot’s implementation, verification of transactions on Bitcoin’s network was slow because each digital signature was validated against a public key. This method multiplied the amount of time required for complex multi-sig transactions that require multiple inputs and signatures.

The Taproot implementation enabled signature aggregation. In more simple terms, this meant that multiple signatures could be batched together and validated. The benefit for multi-sig transactions—or transactions that require signoffs from multiple parties—was even more pronounced since the upgrade condensed transactions containing many inputs, such as those from multiple addresses on Bitcoin’s network, into a single one.

The Taproot upgrade also combined single-sig and multi-sig transactions into a single verification process. The upgrade also had implications for privacy because it made it difficult to distinguish between single-signature and multi-signature transactions. Therefore, it became more difficult to distinguish the participants of a transaction on Bitcoin’s public blockchain.

How Did Taproot Enable Signature Aggregation?

Bitcoin already uses the Elliptic Curve Digital Signature Algorithm (ECDSA) to generate keys and verify transactions. The Taproot upgrade incorporated Schnorr signatures, which are more secure and simple to implement.

One of the properties of Schnorr signatures is linearity. Simply put, this property enables you to use a sum of public keys to sign a sum of signatures. Thus, multiple Bitcoin transactions can be verified quickly in batches instead of being evaluated one transaction at a time.

What Did the Taproot Implementation Mean for Bitcoin’s Network?

As mentioned earlier, the Taproot upgrade streamlined transaction processing, making it easier and faster to confirm transactions on Bitcoin’s network. It also increased the number of transactions that could be processed and decreased the overall cost of transactions on the network because the size of transactions increased.

One could argue that the presence of a Layer 2 technology like the Lightning Network is designed to accomplish the same thing. However, transactions that occur on Layer 2 channels still need to be verified on Bitcoin’s network once a channel is closed. Such batches of unconfirmed transactions can congest Bitcoin’s network when they are passed on for confirmation. Implementing the Taproot upgrade made the Bitcoin network more efficient at processing these transactions.

The Taproot upgrade was also good for privacy because it made it difficult to identify participants in a transaction on Bitcoin’s public blockchain. It accomplished this by disguising multi-signature transactions as single-signature transactions.

Finally, implementing Taproot was also a win for smart contracts on Bitcoin’s blockchain. It opened the door to more innovative financial applications on Bitcoin’s network. According to some, the Taproot upgrade also meant that Bitcoin could be used in Decentralized Finance (DeFi) applications. Although the cryptocurrency’s blockchain has always possessed smart contract capability, as of November 2023, it has not yet been utilized to its full potential due to the problems associated with transaction scaling. The Taproot implementation solved much of that problem.

How Did the Taproot Implementation Affect Bitcoin the Cryptocurrency?

As Bitcoin scales and becomes more efficient at processing transactions, the chances increase that it will become a more effective transaction medium. In the past, bitcoin’s worth as a store of value has been tied to its utility. Therefore, it is conceivable that bitcoin’s value will increase alongside the number of useful transactions on its network.

When Bitcoin reaches its presumed limit of 21 million, revenue from rewards for bitcoin mining will decrease for miners. At that time, transaction fees will constitute the bulk of their revenues. This upgrade helped bring that reality closer by shortening transaction sizes and increasing the speed with which they are processed on Bitcoin’s network.

The Bottom Line

The Taproot upgrade to the Bitcoin blockchain was significant in that it allowed the blockchain to more efficiently process transactions and address scalability issues. The upgrade went live via a soft fork in November 2021.

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