By the time you read this, Bitcoin’s Taproot soft fork will be approved. The tendency is irreversible. The technical aspects are too complicated for most people, but we’ll do our best to explain them. What you actually need to know is this: the modifications will improve the Bitcoin network’s performance, bring a little more privacy, and lighten some transaction’s data requirements. It will also provide the basis for smart contract deployment.

Related Reading | Bitcoin Developer and SegWit Inventor Proposes New ‘Taproot’ SoftFork

Even though the general public is just hearing about this, the process has been long and hard. As with everything in Bitcoin, this underwent several processes before it got to the voting. Taprootactivation.com explains:  

Under Speedy Trial, miners would have three months to signal support for Taproot after its code is shipped through Bitcoin Core, Bitcoin’s primary software version. If 90% of the blocks in a given time frame are not Taproot-supporting, then that means miners don’t support the upgrade and activation fails. If the threshold is reached, then activation takes place after a six-month “locked-in” period.”

As you can see in this graph, the voting was not unanimous. It almost was, though. According to Binance Academy, the main benefit of the upgrade is that:

Spending Bitcoin using Taproot could make a transaction in a Lightning Network channel, a peer-to-peer transaction, or a sophisticated smart contract become indistinguishable. Anyone monitoring one of these transactions would see nothing but a peer-to-peer transaction. It’s worth noting, though, that this doesn’t change the fact that the wallets of the initial sender and final recipient will be exposed.

pic.twitter.com/lq2Wuu2VdC

— Jameson Lopp (@lopp) June 12, 2021

Bitcoin Magazine informs that, since Taproot is a soft fork, “older software will continue to operate without modification after Taproot activation.” Nevertheless, “non-upgraded nodes are “strongly encouraged to upgrade” to fully validate the new programs. Nonetheless, non-upgraded wallets could still send and receive bitcoin from any wallet by using pre-Taproot methods.”

When someone proposes a modification to Bitcoin’s code, voting ensues. If the proposal causes irreconcilable differences between those who accept it and those who don’t, it’s a hard fork. The hard fork is successful and the blockchain keeps going if all the users accept the new protocol consensually. There’s a chain split if some of the users don’t accept the new protocol. 

If the modification doesn’t cause irreconcilable differences, then it’s a soft fork. There’s still a vote, but the blockchain continues regardless of the results. Stack Exchange gives us more information:

The new rules allow a subset of the previous valid blocks, therefore all blocks considered valid by the newer version are also valid in the old version. If at least 51% of the mining power shifts to the new version, the system self-corrects:

Blocks created by old versions of Bitcoin Core that are invalid under the new paradigm might commence a short-term “old-only blockchain-fork”, but eventually, they would be overtaken by the chain fork created under the new paradigm.

Nowadays, Bitcoin Magazine explains, the Bitcoin blockchain reveals too much information when it encounters complex operations. “It’s currently necessary to reveal all the possible conditions that could have been met — including the conditions that weren’t met.” This is “data heavy” and a privacy risk. 

Under Taproot, “all the different conditions under which the funds can be spent are individually hashed (as opposed to combined into a single hash) and included in a Merkle tree.” So, if any of the data has to be revealed, “The rest of the Merkle tree remains hashed and hidden.”

Related Reading | Schnorr + Taproot Soft Fork Promises Big Things For Bitcoin

The new code will also use “the Schnorr signature scheme,” in which “a multisig transaction can be made indistinguishable from any regular transaction.” This provides privacy. Also, “it’s possible to use data to “tweak” both a private key and a public key,” so that, “Anyone unaware that the original key pair was tweaked wouldn’t even see any difference.” This provides additional privacy.

Complex transactions will look like regular transactions to blockchain explorers:

Taproot is based on an interesting realization: no matter how complex, almost any MAST-construction could (or should) include a condition that allows all participants to agree on the outcome and simply sign off on a settlement transaction together. 

Nevertheless, “if a cooperative close proves impossible, the threshold public key can be shown for what it really is: tweaked.” Still, “under normal circumstances no one will ever know that a regular transaction was hiding such a complex smart contract as a fallback.”

And that’s it, that’s the ultra-mega-abridged version. If you are brave and your head doesn’t hurt, check out Taproot’s original proposal. And don’t be afraid to tell us if we misunderstood something or made any mistakes.

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