Since its birth in 2009, Bitcoin radically changed the way we see, conceive, and value what money is up to now and what it can be from its emergence as a protocol and technology that allows transfer of money. value between people, without trusted third parties in an efficient, decentralized, immutable and incensible way. These novel features help to defend the financial freedoms of the individual, giving access to all people around the world.
Being Bitcoin, in addition to a disruptive form of solid money, a computing protocol, it requires constant improvements to optimize its operation such as privacy and scalability, which consists of being able to process more and more transactions to the extent that increase your adoption. One of them is Taproot, whose activation will occur in November 2021.
This improvement, proposed by Gregory Maxwell, extends the flexibility of Bitcoin smart contracts, while offering more privacy. It is highlighted that the most complex smart contracts would look identically to normal Bitcoin transactions. In addition to Maxwell, several Bitcoin Core developers such as Anthony Towns, Pieter Wuille, Jonas Nick, Johnson Lau, Andrew Poelstra, Rusty Russel, and Tim Ruffing, are working on the Schnorr Signatures proposal that includes Taproot in the protocol update.
The core aspect of Taproot is to improve the privacy problems associated with Bitcoin transactions, because currently normal P2P operations can be differentiated from operations using the Lightning Network, as well as transactions that involve smart contracts. It must be remembered that the network is not completely anonymous, due in part to the fact that the information contained in the transactions is exposed, that is, until now operations can be discriminated according to the channel used, the objective, and the additional mechanisms used.
The solution offered by Taproot includes that all transactions that occur on the Bitcoin network have the same “face”, which would make them very difficult to review by those companies that analyze and monitor the operations of the Bitcoin blockchain (Does Chainanalysis sound familiar?).
An everyday example of what Taproot would be is a domino game, in which after the chips have been distributed, we know that everyone has seven, but before starting the game we do not know what type of chip each player has: only the hidden part, or the back of the chips, which is the same in all players.
Along with Taproot, the update is accompanied by another improvement to the scalability problems that are present in the network, and that is the modification of the cryptographic signatures.
Bitcoin operations require to be signed by the owner. The signature allows to mathematically validate that whoever has the private key of the signature made the transaction. Currently, the signatures are assigned to each of the parties involved in a transaction, which causes the occupation of a lot of space, generating slow network processing. The new enhancement will allow two or more parties to make a single signature for the operation, streamlining the network without compromising security. This is what Schnoor Signatures are about: A simple, short and secure, immutable signature, which reduces the space that each operation occupies within a block in the Bitcoin network, allowing several signatures involved in a denser operation to be grouped into one.
Synthesizing: the update of Taproot and Schnoor Signatures will be a Soft Fork or a soft fork, compatible with other previous forks. Taproot will cover up all the conditions (characteristics) associated with any transaction, that is, they will all have the same appearance: the normal ones cannot be differentiated from those that use additional characteristics: a smart contract, a Lightning operation or a normal mainnet operation, they will all look the same.
Schnoor Signatures will enable shorter signatures, which will make more space in the blocks, allowing more transactions to be stored, and thus freeing up network congestion. Likewise, it will combine groups of signatures into one, reducing the costs of operations.