Before we dive into why this matters, let’s look at some of the main benefits of the proposed upgrade.
- Increased privacy: This does not refer to Bitcoin addresses or enhanced anonymity; it refers to types of transactions. Taproot will make complex transactions, such as those requiring multiple signatures or those with delayed release, indistinguishable from simple transactions in terms of on-chain footprint.
- Lower fees: The data size of complex Bitcoin transactions will be reduced, which will lead to lower transaction costs.
- More flexibility: A new type of signature will enhance smart contract functionality in Bitcoin, making it easier and cheaper for users to set more complicated conditions for a transaction.
- Lightning boost. Taproot will make transactions on the Lightning Network cheaper, more flexible and more private. The Lightning Network is a layer 2 solution that enables faster and more scalable payments that periodically anchor in aggregate form to the Bitcoin blockchain, offering eventual Bitcoin security while amplifying speed and potential throughput.
