Bitcoin Taproot BIP Could Be A Privacy Game-Changer

Colin Muller

BIP-Taproot, perhaps one of the most important Bitcoin Improvement Proposals (BIP) ever has been officially released for public scrutiny and deliberation. At risk of being overshadowed by Bitcoin’s (BTC) recent positive price action and the hot-off-the-press Binance hack drama, the news of BIP-Taproot is quite significant. 

This is because, if the upgrades to Bitcoin’s code are realized along the lines of BIP-Taproot, both privacy and efficiency of transactions of the Bitcoin network will be significantly improved and inaugurate an altogether new era for the leading crypto.

Why All The Fuss?

The general thrust of BIP-Taproot as that it is designed to replace the current, clumsy scripting system of Bitcoin, called “pay to script hash” (P2SH).

Believe it or not, Bitcoin actually has some capability as a smart contract platform, albeit a rudimentary one (with nowhere near the scripting capability of newer cryptos like Ethereum).

In Bitcoin, this scripting system can be used to describe specific conditions by which a transaction will be executed - like multi-signature (“multisig”) transactions. A Bitcoin transaction can even be programmed to accept several different types of trigger conditions, with only one of them needing to be hit for the transaction to execute.

This is all well and good, but the main problem with the current system is that such scripted or advanced Bitcoin transactions are publically legible: anyone can see that complex P2SH transactions are being employed rather than simpler ones, and such information can be used to glean identifying information.

Without getting too far into the technicals (of which there are many in this BIP), the upshot of the entire upgrade, should it be implemented as planned, is that all the different kinds of Bitcoin transactions possible will become opaque and look identical. What’s more, this new opacity extends even into grouped transactions which can be obfuscated by Schnorr signatures.

As CryptoGlobe discussed in a March article, Schnorr signatures are a huge improvement over Bitcoin’s current signature regime. One of the most exciting use cases for Schnorr signatures is the possibility of invisibly conducting multi-user CoinJoin transactions, whereby multiple users can batch transactions together so as to hide the transactions’ details. After BIP-Taproot, CoinJoined transactions could be made to look like any other transaction, greatly increasing the prospects for Bitcoin privacy.

Tall Order

Pieter Wuille, the author of the BIP and one of Bitcoin’s most central developers, warned that “combining all these ideas in a single proposal would be an extensive change, be hard to review, and likely miss new discoveries that otherwise could have been made along the way.”

But by way of justification, he adds that “separating them all into independent proposals would reduce the efficiency and privacy gains to be had, and complicate analysis of their interactions.”