Four years after the last major evolution of the bitcoin network, Taproot was just activated at block height 709,632 on Sunday, November 14, 2021 at 5:15 UTC. This block, which will remain an important milestone in bitcoin history, was mined by F2Pool.
Bitcoin's last major evolution was in 2017 with the introduction of Segregated Witness.
With Taproot, the Bitcoin network is getting better than ever. More efficient, with lower fees, better privacy, and expanded smart contract capabilities. In the short term, the impact of Taproot won't be huge, but in the long term they are critical to the bitcoin system.
Bitcoin continues to develop at the pace it should
First of all, this is proof that the bitcoin network is evolving, contrary to what some bad languages often repeat to attack bitcoin. If bitcoin is evolving, it is doing so at its own pace to ensure the safety of the more than $1.2 trillion safely placed in its decentralized network. The slightest glitch in the bitcoin network would have dramatic consequences for the bitcoin revolution.
We need to move forward in a risk-free way. So bitcoin moves at the pace it needs to move.
The changes to the Bitcoin system introduced by Taproot are being made by BIP 341 and BIP 342 . Feel free to go to GitHub for more technical details. For those who want a brief, non-technical overview, I'll detail everything you need to know about Taproot here.
As explained earlier in this article, the main benefits of Taproot for the bitcoin network and its users are threefold.
Smart contracts
The Schnorr signatures introduced with Taproot can be used to allow Bitcoin users to execute more complex smart contracts than Bitcoin currently allows. This is something essential as the need for smart contracts seems to be growing in the cryptocurrency world.
For those who don't know, smart contracts are digital agreements written in code and stored on the Blockchain. Smart contracts will play a key role in the coming years in decentralized finance (DeFi), dApps and NFT for example.
Although the smart contract capabilities introduced by Taproot will not allow the same flexibility as in Ethereum's system, they will dramatically narrow the gap. Therefore, it would not be surprising to see an increase in similar applications based on the Bitcoin blockchain in the coming months.
privacy
The Taproot update will increase privacy for certain types of transactions. Schnorr signatures will allow transactions with multiple signatures or transactions involving multiple addresses to appear as a simple and standard transaction to everyone. Multi-signature transactions are often used to develop smart contracts.
The fact that transactions with multiple signatures become indistinguishable from ordinary ones implies greater anonymity and privacy for the addresses involved in such transactions. Some see this as a risk as they imagine governments will see it as a threat. In fact, more privacy and anonymity means potentially easier use of bitcoin for illegal activities.
I think that's a simplistic view of things and I don't see that as a real risk. The US dollar system will remain a preferred place for those who want to launder money or practice tax evasion . Why? Simply because the banking system has always been conducive to this because of the corruption of the people who run it .
Cheaper transactions
The final important advantage of Taproot is that Schnorr signatures reduce the data required for transactions with multiple signatures, which are more complex to process than standard transactions. With less data to process and store, these transactions will become more efficient in terms of power consumption, but also in terms of execution speed.
Ultimately, with cheaper transactions to process, transaction fees will be reduced for these types of transactions. So this is something that will benefit users of the bitcoin network in the future.
Final thoughts
The activation of Taproot will not have an excessive effect on the price of bitcoin in the short term. On the other hand, it is an excellent signal that bitcoin continues to move in the right direction for the future. Taproot lays the groundwork for the next phase of innovation in the Bitcoin protocol.
Many innovations will be developed from what Taproot enables for the bitcoin system. The majority will be focused on smart contracts.