What Is Bitcoin Taproot? Bitcoin Taproot Explained

San Diego, California, Nov 17th 2015: The bit coin was invented by Satoshi Nakamoto in 2008 as a digital form of money but no one truly knows who  Satoshi Nakamoto is.
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The eyes of the crypto world have spent the last few months glued to Ethereum’s transition to Ethereum 2.0, which finally went live in September after much anticipation and delay. The Merge, as it was known, moved the world’s No. 2 cryptocurrency from proof-of-work mining to an energy-efficient proof-of-stake consensus mechanism.

But the world’s No. 1 cryptocurrency is fresh on the heels of a recent major upgrade, as well. 

It’s known as Bitcoin Taproot, and it represented a before-and-after moment for the world’s oldest and biggest digital coin. 

When Was Taproot Implemented?

Taproot, the most ambitious upgrade in bitcoin history, went live at block 709,632 at 5:15 UTC on Sunday, Nov. 14, 2021.

It was the first major upgrade since the Segregated Witness protocol update on Aug. 23, 2017, which improved the way bitcoin’s blockchain stored data. The Taproot upgrade, which was designed primarily to improve the bitcoin network’s efficiency and privacy, consists of three Bitcoin Improvement Proposals.

  • BIP340 — Schnorr signatures: This portion provides a faster and more secure way to authorize transactions that is less data-intensive than previous methods. One important characteristic is that Schnorr signatures are backward compatible with bitcoin’s original cryptography algorithm, which means that exchanges, wallets and custodians can opt into the new format over time. 
  • BIP341 — Taproot: The upgrade’s namesake BIP uses a technique called Merkelized Abstract Syntax Tree to relieve the blockchain of excess smart contract transaction information while obscuring certain private transaction data. 
  • BIP342 — Tapscript: This BIP gives bitcoin an improved transaction programming language that utilizes Taproot and Schnorr technology while also giving developers the means to implement bitcoin upgrades more efficiently in the future. 
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Greater Efficiency and Privacy: Two Sides of the Same Digital Coin

As previously stated, the purpose of the Taproot upgrade was to make the bitcoin network more efficient and more private — and the improvement of one facilitates the improvement of the other. 

By committing less transaction information to the blockchain, less transaction data is available for anyone to see on bitcoin’s public blockchain ledger. At the same time, the reduction in transaction data opens up space in each block for a greater number of transactions, which increases throughput and reduces fees. 

Taproot Upgrades Bitcoin’s Capacity For Smart Contracts

Enhanced privacy and efficiency are Taproot’s primary objectives, but the upgrade also enables greater smart contract flexibility — and that might be the update’s most consequential long-term contribution.

According to IBM, “Smart contracts work by following simple “if/when…then… statements that are written into code on a blockchain.”

Smart contracts are stored on the blockchain and they run whenever certain predetermined conditions are met. They’re used to execute agreements automatically and inform all stakeholders right away without the involvement of an intermediary. They can also automate workflow and trigger the next action in a predetermined chain of events. 

There’s no paperwork in smart contracts and no time wasted hashing out details or reconciling errors. Since there are no intermediaries, the contracting parties sidestep the fees and time delays associated with third-party involvement. Smart contracts provide trust, transparency and the highest level of security. 

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One way to think of them is like a vending machine, which can automatically distribute a can of soda without a third party’s permission or assistance once it verifies that the buyer has put in enough money.

The Road to DeFi?

Ethereum was the first blockchain to feature smart contract capabilities. That ability made ethereum the home base for the NFT and DeFi crazes of 2020-21, which made ETH the world’s premier altcoin. 

Fabian Schar, a professor of distributed ledger technology and fintech at the University of Basel and managing director of the Center for Innovative Finance, wrote for the International Monetary Fund (IMF) that decentralized finance (DeFi) “uses public blockchain networks to conduct transactions without having to rely on centralized service providers such as custodians, central clearinghouses, or escrow agents. Instead, these roles are assumed by so-called smart contracts.”

Conducting decentralized financial transactions without the involvement of central authorities like banks or governments was the primary thesis of bitcoin in its conceptual stages. But it’s ethereum — and its capacity for smart contracts — that’s making DeFi a reality. 

Bitcoin’s ability to execute smart contracts is far more limited than Ethereum’s, but the Taproot upgrade has expanded that limited ability. That expansion could lead to a future where the original cryptocurrency emerges as a challenger to the world’s top altocin in the DeFi space. 

What About Bitcoin NFTs?

Ethereum also hosts most of the world’s NFT protocols — and just like DeFi, ETH’s dominance in the NFT space can be credited to its advanced capacity for smart contracts. 

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Bitcoin’s blockchain, on the other hand, cannot support NFTs — sort of. 

Writing for Planet Crypto, cryptocurrency expert Juhi Mirza wrote, “The Bitcoin blockchain does not natively support NFTs, but they can be minted on bitcoin-powered blockchains or Layer-2’s, for example.” 

She went on to explain that a blockchain called Stacks “runs smart contracts by settling the transactions on bitcoin. Stacks enables users or developers to mint NFTs or NFT marketplaces that can be secured through the bitcoin network.”

Several NFT platforms — including Boom, StacksArt and STXNFT — are already using Stacks to create and mint NFTs. But as of today, bitcoin holders must still convert their BTC to ETH if they want to buy NFTs on the ethereum network. 

Same as with DeFi, it’s yet to be seen if the Taproot upgrade — and the enhanced smart contract capacity it gave to Bitcoin — will create a future where Bitcoin becomes a player in the NFT space. 

What Is BTC Taproot Address? 

Bitcoin addresses are 26-35 alphanumeric character identifiers that coin holders use to receive bitcoin. According to Bitcoin Design, there are several different address formats, each of which is based on different specifications. 

The newest among them is P2TR, or pay-to-taproot, also known as Bech32m addresses or simply Taproot addresses. 

Taproot addresses, which are not case-sensitive, start with the prefix “bc1p.” An example of a P2TR Taproot address is bc1pmzfrwwndsqmk5yh69yjr5lfgfg4ev8c0tsc06e. 

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Previous addresses, which are still in active formats thanks to the soft fork’s backward compatibility, include: 

  • SegWit address: pay-to-witness-public-key-hash (P2WPKH)
  • Script address: pay-to-script-hash (P2SH)
  • Legacy address: pay-to-pubkey-hash (P2PKH).

Who Developed Bitcoin Taproot? 

According to Cointelegraph, Bitcoin Core developers started planning to expand the capacity of SegWit from the time it was implemented in 2017 The following year in 2018, Greg Maxwell, a prominent bitcoin coin developer, became the first to propose the Taproot upgrade. 

A different Bitcoin Core developer named Pieter Wuille created the three BIPs that would form the structure of Taproot. 

In 2020, a trio of developers named Tim Ruffing, A.J. Townes and Jonas Nick came on board with the project and joined Maxwell and Wuille in implementing the upgrade. 

In June 2021, the Taproot upgrade was locked in when the network achieved the required 90% critical consensus mark among bitcoin miners, which paved the way for the upgrade to become a reality five months later in November.

How Will Taproot Affect Bitcoin Price? 

Taproot upgraded the bitcoin blockchain during one of the most consequential times in the history of cryptocurrency. 

On Nov. 10, 2021, four days before Taproot went live, bitcoin reached its all-time high when it peaked above $68,000. While it might seem like Taproot anticipation pushed Bitcoin to its highest-ever value, the two events did not exist in a vacuum. 

Every major cryptocurrency was peaking at around the same time in November 2021, as were the stock market’s major indices — but a bear market was coming for all of them. 

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Bitcoin’s price began cratering a few days later and by the start of December, BTC was trading below $50,000. It was under $40,000 by late January 2022, below $30,000 by late May, then below $20,000 by the start of the summer. Today, BTC remains in the doldrums, trading at around $20,500.

Although it coincided with both, Taproot can’t take the credit for bitcoin’s peak nor the blame for its subsequent slide. 

BTC was just one casualty in the brutal “crypto winter” that defined the market in 2022. Ethereum, cardano and polygon had all lost roughly 60% of their value by September, with many other top tokens in the same unenviable position. The S&P 500 had fallen into a deep bear market around the same time, as well.

Final Take

In 2021, Taproot went live as bitcoin’s first major upgrade in four years. It made the network faster, more efficient, more secure and more private, and enhanced its capacity to execute smart contracts — but don’t base your investment decisions on the hoopla surrounding the update. 

You should base your decision to purchase or not to purchase bitcoin solely on your investment strategy. As BTC’s price crash proved, Taproot is not a magic bullet, and if bitcoin didn’t fit into your strategy yesterday, it shouldn’t today, either.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.


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