James Bachini

Taproot Explained | Beneficial For Bitcoin?


The Taproot Bitcoin upgrade was activated on November 14th 2021. It was designed to improve privacy, efficiency and the network’s ability to process custom logic.

The upgrade inadvertently made it possible to link metadata to Bitcoin transactions. By using ordinal theory it is possible to inscribe each satoshi (lowest denomination of Bitcoin) with a corresponding piece of data.

A group called the Taproot Wizards popped up to “Make Bitcoin Magical Again” and the hard-lined Bitcoin maxis lost their minds.

Taproot Wizards

How Taproot Works

The upgrade introduces Tapscript, a flexible way to write Bitcoin scripts. It allows for more complex transactions to be faster on the network. Tapscript uses Schnorr signatures are smaller and more efficient than the ECDSA signatures used for Bitcoin transactions. This means that transactions using Schnorr signatures will be smaller and cheaper to process.

With Taproot transactions can be made more complex and private by combining multiple spending conditions into a single output. This is achieved through the use of a new type of address called a “Pay-to-Taproot” (P2TR) address, which is derived from a Tapscript.

For developers there is some example Tapscript code here: https://github.com/bitcoin-core/btcdeb/blob/master/doc/tapscript-example-with-tap.md

Tokens On Bitcoin

Taproot was built to help scale the Bitcoin network by making it more efficient to process transactions. This can lead to a higher number of transactions per second and a lower cost per transaction.

However in practice it has had the opposite effect. Taproot enabled inscriptions which enabled Bitcoin NFT’s and BRC20 tokens. All of which have caused increasing demand for blockspace and increasing fees for transactions on the Bitcoin network.

Smart Contracts On Bitcoin?

Bitcoin still doesn’t have an application layer and isn’t built to be a global decentralized virtual machine. The Taproot upgrade allowed for metadata to be inscribed with individual satoshis which enabled it to be “abused” for this purpose. Taproot was never designed with 3rd party developer functionality in mind and it’s use as a smart contract platform is highly limited.

For Bitcoin it has reignited some developer interest and created a new layer of speculative digital assets on top of the network. Long term Bitcoin needs to solve the miner funding problem and increasing the utility of the network should be seen as a good thing. However many purists believe that the Bitcoin network should be a simple, elegant settlement layer. I agree to an extent but the can of worms has been opened and it would take a hard fork and further divide in the community to revert backwards from here.

Bitcoin Taproot

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Thank you.

James Bachini

Disclaimer: Not a financial advisor, not financial advice. The content I create is to document my journey and for educational and entertainment purposes only. It is not under any circumstances investment advice. I am not an investment or trading professional and am learning myself while still making plenty of mistakes along the way. Any code published is experimental and not production ready to be used for financial transactions. Do your own research and do not play with funds you do not want to lose.



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