The Bitcoin Taproot Upgrade: Path towards an Era of High Speed and Low Transaction Fees


“Bitcoin has been known for its path breaking capabilities to transform the financial sector and with mass adoption and growing user base, Bitcoin is seeing its fair share of issues and is finding it difficult to cope up with the rising demands. The network congestion is resulting in slower transaction processing and high transaction fees during the peak hours. To curb these issues, Bitcoin has initiated a Taproot Upgrade on November 14th 2021 at a block height of 709,632.”

The Taproot Upgrade: The Timeline and Reasons for Implementation

The most anticipated Bitcoin Improvement Proposal (BIP) after the year 2017 also known as Taproot upgrade was initiated on the Bitcoin blockchain at a block height of 709,632 on 14th November 2021. The Bitcoin community was pushing hard to implement this BIP as Bitcoin was suffering with the issue of transactional congestion due to extensive mass adoption around the world. This congestion resulted in extremely low transaction speed and very high transaction fee at the peak hours. This limited the scalability of the whole blockchain and thus the Taproot Upgrade was introduced to solve these issues.

The Taproot Upgrade: What Will It Do?

The Bitcoin transactions are executed like cash transactions unlike the transaction in the traditional banking system. Thus, each transaction might contain multiple UTXOs (Unspent Transaction Outputs) to form the final amount of transaction. These multiple UTXOs require signatures for each UTXOs that are recorded on the Bitcoin blockchain and verified by the miners. These signatures were calculated using a complex ECDSA algorithm in Bitcoin previous to the Taproot upgrade and required each signature to be included and verified. This utilized more space on the blockchain and thus more congestion.

The Taproot upgrade introduced the Schnorr Signatures replacing ECDSA algorithm. The Schnorr Signatures are better in many ways as:

  • They are smaller in size with a size of maximum 64 bytes as compared to 72 bytes of ECDSA signature.
  • Single Schnorr Signature is required for multiple UTXOs in a transaction.
  • The Schnorr Signature algorithm requires less space and less computing power to verify the transactions.

The Taproot Upgrade: Benefits

There are multiple benefits that will be reaped by Bitcoin blockchain with the introduction of Taproot Update:

Increased Transaction Speed

The use of Schnorr Signatures will increase the transaction speed of the network as fewer signatures are to be included and verified by the network.

Increase in Number of Transactions peer Block

Signature of each UTXO had to be included with the transaction taking up more space and thus each transaction became bulky before Taproot Upgrade. The upgrade will reduce the size of the signature thus reducing the size of a transaction leading to accommodating more transactions per block.

Reduction in Transaction Fee

The Bitcoin transaction fee creeps up during peak hours and the Taproot upgrade is expected to be lowering this transaction fee by helping in clearing the mempool quickly and more efficiently. Though, how much fee reduction will practically be done, is yet to be seen. 

Disclaimer: The article is meant for the educational purpose only and in no way it should be considered as financial advice. Own research on the topic is advisable.

Photo by – IgorShubin on Pixabay

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