The first major upgrade to Bitcoin since SegWit in 2017. Launched November 16, 2021, Taproot is a Bitcoin soft fork that improves privacy and efficiency. It also improves privacy for Layer 2 Bitcoin chains (see
Lightning Network). Taproot enhances Bitcoin scripting, which gives it more programming options (see
Bitcoin smart contract).
Schnorr Signatures (BIP-340)
Taproot uses the Schnorr algorithm, which combines multiple digital signatures into one, thus hiding their identities and creating a more private transaction. Multiple unspent transaction outputs (UTXOs), which are the records of spendable bitcoins for each coin owner, are merged into a single, smaller transaction.
When Bitcoin was launched in 2009, the Schnorr signature was protected by patents, and thus the ECDSA digital signature algorithm was used exclusively until Taproot. See
ECDSA and
Bitcoin transaction.
Pay-to-Taproot (BIP-341)
New Pay-to-Taproot (P2TR) spending rules are more private because complex multi-signature transactions appear the same as simple transactions with one signature. Merkelized Alternative Script Trees (MAST) enables locking UTXO outputs to multiple scripts that are compressed via hashes in a tree hierarchy (Merkle tree).
Tapscript (BIP-342)
Tapscript provides new op codes for Bitcoin transaction scripts that implement Pay-to-Taproot (P2TR). Tapscript scripts verify Taproot spending and Schnorr signatures. See
Bitcoin.