Bitcoin Taproot upgrade has received 53.71% hashrate support, will activation be on schedule?

What is Taproot? It is a proposed protocol upgrade designed to improve Bitcoin’s privacy and flexibility, and is expected to be the biggest Bitcoin upgrade since 2017. The 2017 SegWit upgrade caused the network to hard fork, where one blockchain split into two separate blockchains. Although Taproot is less controversial, it is still worth understanding how it will change the world’s largest blockchain network.

What problem does Taproot aim to solve?

The Bitcoin blockchain is made up of computer code. So when you send a transaction on it, the "tokens" are actually associated with a script. These instructions tell the blockchain what you can do with them. Typically, this means using a private key to provide a signature and prove that you are able to spend them.

But people can make more complex transactions — such as smart contracts, or code that defines the agreement between a sender and a receiver — requiring multiple signatures before a token can be used, or requiring a waiting period known as a time lock.

When the coins are eventually spent, the scripts become public on the bitcoin blockchain, adding a ton of data to the already clunky blockchain and potentially revealing details about who was involved in the transaction, making the job of blockchain tracing firms like CipherTrace and Chainalysis, and the government agencies to which they provide data, much easier.

What will Taproot do?

With Taproot, all parties in a transaction can collaborate, combine multiple public keys to create a new public key, and with Schnorr signatures, combine their signatures to create a new signature, making an otherwise complex transaction look like a standard, person-to-person transaction.

What are the benefits?

For these specific types of complex transactions, Taproot will enhance privacy while reducing the amount of data required to make a transaction, thereby lowering transaction costs that are near all-time highs due to Bitcoin’s growing popularity.

Additionally, the privacy benefits will extend to applications that use time-locked contracts, such as CoinSwap, which mixes Bitcoin transactions together to obfuscate the source and destination of Bitcoin. The same applies to the Lightning Network, a second-layer network that bundles transactions off-chain. Thanks to Taproot, these applications will become even more private.

As the founder of CoinSwap said, “We believe this architecture will provide the greatest possible anonymity for fixed-party smart contracts, making them appear to be the simplest payment method.”

Who proposed this? Taproot was proposed by Gregory Maxwell in 2018. Maxwell is the developer of Bitcoin Core and was the chief technology officer of Blockstream. Bitcoin Core is an open source software created by Blockstream. Currently, it is the main software client of Bitcoin, which allows individuals to interact with the blockchain and enables users to participate in verifying transactions on the Bitcoin blockchain.

What is the current status of Taproot?

Bitcoin miners — the people who mint new blocks on the network — will have to "signal" their support for the upgrade within two weeks. (Bitcoin's "difficulty" adjusts every 2,016 blocks, about two weeks apart, depending on how quickly miners create new blocks; the goal is to produce a new block every 10 minutes on average.)

In order for the upgrade to go through, 90% of mined blocks during this period must contain data from miners, known as "signaling bits." If this threshold is not met, miners will be given a chance in each subsequent difficulty cycle until August 11. Once accepted, the Taproot upgrade will be activated in November.

According to Taproot.watch data, 53.71% of mining pool hashrate currently supports the Bitcoin Taproot upgrade. However, due to technical issues, many miners have not yet issued support signals, so the upgrade will not be carried out during this round of difficulty cycle.

Why does it have to reach 90%?

Bitcoin is a global project with millions of stakeholders, including developers, miners, institutions, and individuals. Therefore, substantive changes require broad buy-in.

The standard process for gaining support is to submit a Bitcoin Improvement Proposal (BIP). BIPs consist of code changes to the Bitcoin protocol that can be proposed by anyone.

Some want to move forward with Bitcoin Improvement Proposal 9, which would make the upgrade contingent on miner support. Others support BIP8, which would allow the upgrade to be pushed forward with or without miner support.

Community members in public meetings ultimately decided to adopt a proposal called “Speedy Trial,” which gives miners three months to signal the 90% threshold required for activation.

Previously, Bitcoin Core developer Luke Dashjr caused quite a stir when he opposed the “Speedy Trial” by insisting that consensus had been reached on BIP 8 and creating client software that allowed node operators to activate Taproot early.

In response, Bitcoin developer Matt Corallo called it "an unaudited Bitcoin Core fork with consensus divergence rules."

Who doesn't support?

Prism whistleblower Edward Snowden has reportedly spoken out against the Taproot upgrade, saying it could actually make Bitcoin’s privacy worse. Of course, most Bitcoin developers disagree.

Additionally, the majority of miners have still not signaled support, but the three-month activation window provides multiple opportunities for them to make a decision.

Overall, though, the proposal appears to be popular because it makes Bitcoin more like digital cash with few notable drawbacks.

When was the last major update to Bitcoin?

The last major upgrade to the Bitcoin network was the Segregated Witness (SegWit) update in 2017. The purpose of the upgrade was to remove some signature data from transactions in order to make more space for transactions within blocks. The Bitcoin blockchain would thus become faster.

However, some people thought that this was not enough, and they saw Bitcoin as an investment tool rather than a usable currency. They believed that Bitcoin needed a larger block size so that it could be traded as quickly and cheaply as cash. As a result, this faction eventually initiated a hard fork, forming Bitcoin Cash (BCH).

Taproot, by contrast, has significantly fewer opponents, with the main conflict being how to make it a reality.