After Taproot, what’s next for Bitcoin?

Taproot, a privacy and scalability upgrade, the long-awaited soft fork for Bitcoin developers finally launched in November. It is worth mentioning that even though Taproot is now activated, the work on Taproot is far from over, and more upgrades to BTC are in the works.

So, after Taproot, what's next?

After Taproot upgrade

Taproot is a particularly large upgrade for Bitcoin, known as a “soft fork,” which is not often performed in the Bitcoin space.

Soft forks are uncommon, and before Taproot, the last soft fork was SegWit, which was activated on Bitcoin four years ago.

Nonetheless, they are an important type of upgrade that has implications for many projects built on top of Bitcoin, iteratively improving the functionality of the open-source digital currency.

To use Taproot transactions, Bitcoin wallets, exchanges, and other services will need to upgrade to support them. In addition, many of the changes that developers have been focusing on that rely on Taproot still need to be made.

But even if some exchanges and wallets have yet to adopt Taproot, some exchanges like BitGo and Blockstream Green have been fast, with more than 50% of nodes supporting Bitcoin now running the upgraded software.

To get a long-term view of Bitcoin’s future, let’s look at some other possible soft fork changes that are in the pipeline.

SIGHASH_ANYPREVOUT

SIGHASH_ANYPREVOUT, described in Bitcoin Improvement Proposal (BIP) 118, may sound grand in its description, but the changes may be far less dramatic than they appear.

In short, it allows for a new signature option when signing transactions that allows users to sign transactions without adding specific outputs (i.e. the coins they want to send) - at least not immediately.

The code change could help resolve various technical issues, including those faced by the Lightning Network, bitcoin’s overlay network that increases the scalability and speed of transactions and reduces costs.

One of the pain points of the Lightning Network is the need to store the latest data. Similar to losing a Bitcoin private key, if a user loses this data, they may not be able to retrieve their funds. The proposed Lightning Network modification Eltoo can help reduce state storage, but it requires SIGHASH_ANYPREVOUT to work properly.

SIGHASH_ANYPREVOUT paves the way for Eltoo, which can make Lightning easier to use.

Covenants

Covenants are proposed changes to the Bitcoin code that would restrict where users can send their funds. For example, a covenant could limit where Bitcoin can be sent to only a few whitelisted addresses.

Why would a user want to restrict access to their funds? There are many reasons.

One is security: contracts make it easier to implement a “vault” so that users can still get their funds back even if a thief tries to “run away with them,” but this is just one application.

Contracts can also help with congestion control and channel factories, another proposed idea to further improve the scalability of the Lightning Network.

That’s the gist of the contract, and there are at least a few proposals for it, including OP_CHECKTEMPLATEVERIFY (outlined in BIP 119) and OP_TAPLEAF_UPDATE_VERIFY, each taking a different technical approach.

Drivechains

“Sidechains” have long been a proposed feature to be added to Bitcoin, and they are additional blockchains that are “pegged” to Bitcoin.

These sidechains can have new and experimental technologies that bitcoin doesn’t yet have — such as adding zk-SNARKs functionality similar to the privacy coin zcash, which allows users to have more privacy than bitcoin offers. Users can effectively lock up their bitcoins to use new types of coins in the sidechain.

In the past, sidechains have been called “altcoin killers.” Because sidechains offer a way to add new, experimental technology to Bitcoin, they should reduce the need to launch new coins to test new ideas.

Drivechains are a spinoff of this idea invented by researcher Paul Sztorc. In addition to writing up the changes he proposed in BIPs 300 and 301, he and other developers have implemented a working version of the idea.

Drivechains are a more controversial proposal, though, as some developers argue they could give more power to miners (who secure Bitcoin).

Cross-input signature aggregation

Now that Taproot is complete, we can add Cross-Input Signature Aggregation (sometimes just called CISA) on top of it.

Digital signatures are a key part of Bitcoin. When a user wants to send some Bitcoin, they must "sign" it with their private key, proving that they own their Bitcoin, allowing them to send it to someone else.

Taproot introduces Schnorr signatures, which allow multiple signatures to be combined into a single signature, reducing transaction overhead and improving scalability.

Building on this, CISA proposes to allow signatures to be aggregated in a single transaction. One exciting outcome for CISA is that it could make CoinJoins cheaper.

CoinJoins are a way to improve user privacy by combining coins from multiple users into one transaction and “mixing” them so that it’s difficult to tell where any coin came from, using wallets like Wasabi and Samourai.

Currently, CoinJoin is cumbersome and more expensive than regular transactions. But with CISA, it could be much cheaper. All signatures in a transaction can be mixed together, reducing the cost of CoinJoin transactions.

In the end, only time will tell if any of these proposals will make it into Bitcoin. Once more concrete proposals are made, the community will decide if they are good changes worth pursuing.