What is Taproot?
In short
Taproot is a Bitcoin upgrade that improves the efficiency and privacy of complex transactions, as well as the flexibility of the rules under which bitcoin can be spent.
Imagine a safe that opens either with the agreement of its owners or through an alternative emergency procedure. Do all the possible ways of accessing it need to be made public every time it’s opened? Taproot allows something similar on Bitcoin: when the main signature path is used, the alternative conditions stay hidden.
It was activated in November 2021 as a soft fork, meaning a rule change that is compatible with older nodes on the network. It combines Schnorr digital signatures with a way of organizing alternative spending conditions in a cryptographic tree. The signatures prove that the required authorization exists to spend the bitcoin, while the tree makes it possible to reveal only the condition being used, together with the necessary proof, instead of the full set of conditions.
In a properly designed transaction with multiple participants, their keys and signatures can be combined. When everyone cooperates, the spend can therefore appear on the blockchain with a single public key and a single signature, just like an ordinary Taproot payment. If the alternative procedure is needed, the relevant part of the rules is revealed.
Why it matters
For Bitcoin users, the benefit is mainly less data and better privacy in certain complex transactions. A smaller transaction size can mean a lower fee, though that doesn’t automatically hold in every case. Taproot also gives developers more flexibility for multisig wallets and other applications with special spending conditions. We see it as an improvement to Bitcoin’s toolkit, not as turning it into a platform with the same capabilities as Ethereum.
What to watch out for
Taproot doesn’t make transactions anonymous. Amounts and links between transactions remain public and can be analyzed. Its advantages also depend on how your wallet or app makes use of it. Taproot addresses start with “bc1p,” but before a withdrawal you need to check that the sending service supports them. You don’t need to swap your BTC for some new coin: Taproot is a network upgrade, not a separate token.