What Is Bitcoin Taproot? A Complete Guide to Bitcoin’s Privacy Upgrade

Key Takeaways

• Taproot is an update to the Bitcoin protocol that was released in 2021 based on three proposals: Schnorr signatures, Taproot and Tapscript.
• It went into effect on Nov. 14, 2021, at block height 709,632, with over 90% of miners indicating their support for the change.
• Taproot addresses begin with “bc1p” and are compatible with previous Bitcoin address formats.
• The change helps to enhance the privacy of complex transactions as they are indistinguishable from simple ones in the blockchain.
• Currently, many major wallets and exchanges have implemented the new Taproot feature, allowing users to send and receive Bitcoin transactions with Taproot addresses.

Bitcoin doesn’t evolve rapidly and it evolves slowly when it does. Taproot is one of the rare upgrades of the network that can be compared to Segregated Witness (SegWit), which was introduced in 2017. It covers aspects of signing transactions, the amount of data they expose, and the versatility of Bitcoin for more sophisticated applications, such as multisignature wallets and smart contracts.

If you’ve seen a Bitcoin address begin with “bc1p” or seen wallets prompting you to turn on a “Taproot” option, then you’re in the right place as this guide explains exactly what it is, why the upgrade was created and what it truly means for your daily Bitcoin usage.

What Is Bitcoin Taproot?

Taproot is a soft fork upgrade to the Bitcoin protocol that aims to increase privacy, lower transaction fees and expand Bitcoin’s capabilities regarding smart contracts. A soft fork strengthens the rules that already exist in the network, but remains backwards compatible, whereas a hard fork creates two separate chains. This means that wallets and nodes with previous versions of software may continue to work without any problems, although they will not be able to support the new features.

Taproot is really three different Bitcoin Improvement Proposals (BIPs) bundled together:

• BIP 340 (Schnorr Signatures): A new digital signature scheme to supersede the previous ECDSA (Elliptic Curve Digital Signature Algorithm) scheme that Bitcoin had been using since its launch.
• BIP 341 (Taproot): The main proposal that will introduce the new output type and enable complex spending conditions to be hidden until they are needed.
• Scripting language 342 (Tapscript): A new script language that supports Schnorr signatures and Taproot outputs.

These three ideas all contribute to a more streamlined and efficient approach to multisignature transactions, timelocks and other conditional spending rules while maintaining the simplicity of the transaction data on-chain.

The History Behind the Taproot Upgrade

Who Proposed Taproot?

Taproot originally proposed by Bitcoin developer Greg Maxwell, in early 2018. Another long-time contributor to Bitcoin Core, Pieter Wille, wrote the three BIPs which eventually formalized the proposal. Some years later, Tim Ruffing, Anthony Towns, and Jonas Nick joined in and helped add to the refinement of implementation before it was integrated into Bitcoin Core.

How Taproot Got Activated

However, implementing any change in the base layer of Bitcoin takes a collective effort and requires widespread agreement among network participants, as there is no single entity or company that can unilaterally implement an update. Taproot’s community chose an activation method known as Speedy Trial, which was created by David Harding and Russell O’Connor.

Mining had only a few months to indicate their willingness to participate in Speedy Trial. If 90% or more of the blocks in the last two weeks of difficulty (1,815 out of 2,016) contained a particular signal, activation will be locked in. This threshold was hit in June 2021 and the network entered a wait for node operators and miners to upgrade their software.

On November 14, 2021, Bitcoin’s block number 709,632 activated Taproot. Since that time, any node running the new software would be able to identify and accept transactions based on the new Taproot rules.

How Does Taproot Work?

Taproot’s technical pillars are three pillars that address different flaws in the current structure of the older Bitcoin transactions.

Schnorr Signatures

Prior to Taproot, Bitcoin has only ever used ECDSA for signing transactions. This is replaced by a scheme called Schnorr signatures which is shorter, quicker to check, and is mathematically “linear”, that is, several signatures can be condensed into a single signature. For multisignature wallets, it translates to a multisig transaction appearing the same as a single-sig transaction in terms of format, both while the transaction is being executed and for subsequent analysis of the blockchain.

Writing with Alternate Script Trees(MAST)

Taproot is a method that combines various possible spending conditions into a small commitment, known as MAST (Multi Asset Spending Conditions). When the money moves, only the condition that it was actually spent under is being shown on the blockchain, not all of them. Unused conditions remain dormant, which decreases the quantity of data kept on chain and the data revealed about the structure of the transaction.

Tapscript

The new scripting language that is used with the Taproot outputs is called Tapscript. It provides a cleaner means for developers to implement features such as time-locked withdrawals or multi-party contracts and still be compatible with the Schnorr signature scheme.

Taproot vs SegWit vs Legacy Addresses

Since 2009, Bitcoin has changed its address format several times, each representing a different phase of the Bitcoin network’s evolution. So, let’s delve into the key differences between the major types.

The key difference, aside from the signature scheme, is whether complex transactions are more or less obscure when using Native SegWit. Although the multisig information is already visible on-chain with native SegWit, it still made the transactions smaller and cheaper than with a Legacy address. Taproot does more than just make multisig and single-signature transactions look indistinguishable from each other; literally their key-path spends are slightly smaller in transaction size than equivalent SegWit spends.

Legacy addresses continue to be valid and usable. They don’t have to be moved away from, but it does have higher fees as it does not benefit from optimizations made in later upgrades to data-size.

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May I send BTC to a Taproot Address?

Yes. Taproot addresses (bc1p) operate in the same way as any other Bitcoin address, and are used for sending and receiving payments. The key thing to look out for is if the wallet/exchange you’re sending from supports the bc1p format. The support increased significantly since 2021, but a few older wallets and services are still not able to properly validate taproot addresses, leading to an invalid transaction when the address is valid.

If you ever have doubt about whether or not a service will accept the Taproot, it makes sense to send a small test amount first to make sure it’s compatible with the service before sending a large amount of money. Payment made from a Taproot address to a Legacy address or SegWit address are not affected and operate fine because of a soft fork design of Bitcoin.

Which Wallets Support Taproot?

Support for Taproot is becoming commonplace, but varies from partial to full support. As far as hardware wallets are concerned, all of the above-mentioned wallets have the capability of sending to and receiving from Taproot addresses. It’s best to use software wallets such as Bitcoin Core, Bitcoin Sparrow, Electrum, or Wasabi that support full Bitcoin Core functionality as well. Other popular mobile wallets, such as BlueWallet, Muun and Phoenix have also introduced Taproot support.

The support of multi-chain wallets has also been added. For instance, Phantom was originally developed for Solana, and now has support for both Native SegWit and Taproot Bitcoin addresses. Taproot isn’t turned on by default in Phantom. Taproot must be manually enabled for users to send and receive with a bc1p address from the Settings, then the Preferences, then the Preferred Bitcoin Address.

Some more complicated options like MuSig2 key aggregation, or the ability to spend a Tapscript with multiple script branches are only supported by a smaller number of wallets. If your use case is beyond just sending/receiving, like creating a collaborative multisig vault with other wallets, you may need to consult a wallet’s documentation to determine exactly which capabilities it supports with reference to its Taproot support.

Benefits of Taproot for Bitcoin 

Improved Privacy

Taproot’s greatest asset is uniformity, which means privacy. Prior to this upgrade, a multisignature transaction would have appeared different from a simple transaction on the blockchain, making it easy to identify more complex transactions, like escrow or corporate treasury wallets. Those transactions can look like a typical single-signature spend with Taproot, making it very difficult to make inferences about transactions or transactors.

Reduce fees on complicated transactions.Reduce fees for complex transactions.

Transactions that used to take more space in the block due to more space were taken up by multisignature and conditional spending data now takes lesser space due to Taproot’s compression. This means that, for multisig wallets, Lightning Network channels or other advanced configurations, fees will be slightly higher.

A Foundation for Smart Contracts

While the Bitcoin network was never intended to be a smart contract platform like Ethereum, Taproot helps to reduce the performance difference. Taproot enables more complex functions to be implemented directly in the transaction format, making Bitcoin cheaper and more private for more advanced applications that can be constructed atop it, such as enhancing the Lightning Network and more efficient forms of on-chain escrow.

Backward Compatibility

None of these benefits to the user of Taproot will break anything for users who have not upgraded, because it is a soft fork. There is no fork of the network, an older wallet can still be used as it was before, and the network remains centered.

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Taproot Adoption: Where Things Stand Today

Taproot has taken off in stages, rather than in a linear fashion. For the first year or so after it was activated, the usage remained low, as a lot of wallets weren’t supporting it and it wasn’t on the list of incentives to try something new. The advent of Ordinals, a method of embedding data onto individual satoshis that leverages Taproot’s scripting features, shook the industry in 2023.In 2023, the industry was shaken by the rise of Ordinals, a method that allows embedding data into individual satoshis, taking advantage of Taproot’s scripting capabilities. Daily taproot transactions have reached as high as 76% in May 2023 during the peak of Ordinals activity, but have been in a consistent range throughout 2024 as inscription activity continues.

As Ordinals and activity died down, Taproot’s share of daily transactions also fell, but not to the point where it was a tricklet of transactions instead of a significant part of network activity. The number of unspent transaction outputs (UTXOs), also known as unspent balances, is a slightly different story, too; while Taproot outputs only account for a small percentage of total UTXOs, they make up a significant percentage of the number of unspent transaction outputs in terms of UTXOs. The price difference indicates that a considerable number of Taproot addresses are being generated and utilized widely, though significant amounts of balances may not have migrated there by the bigger holders.

How to change to a Taproot Address.

It doesn’t have to be the default; no one is being pushed to move to a Taproot address. If you would like to get going utilizing one, though, it’s quite simple with most current wallets.

• Check wallet support. If you are using a software wallet, verify that your wallet supports the Taproot address type or that it is the same supported address type.For software wallets, check your wallet to ensure that it has the Taproot address type or is the same supported address type. This is usually listed on the most recent wallets, in the account settings or address preferences.
• Create a new Taproot address. This could be automatic or it may be necessary to choose between “Taproot” and “bc1p” from an address-type menu, depending on the wallet.
• Send a small amount of test first. If you’re transferring a large amount, make a small transfer to ensure that the address you’re sending to is working properly from whichever wallet or exchange you are using to transfer from.
• Move funds gradually. It may be beneficial to do so when network fees are lower to lower the cost of the transaction if you are using a Taproot address to consolidate older UTXOs into one.
• Have the previous addresses available. Don’t give up on Legacy and SegWit – they are still fully valid and if you continue to interact with services which are not supporting Taproot yet, you don’t need to completely drop these options yet.

It’s the same process for any type of wallet such as a hardware wallet like Trezor or Ledger, desktop wallet like Sparrow, or mobile wallet like BlueWallet. The primary difference is in the naming of the menu items, and whether the wallet is pre-enabled to Taproot or has to be turned on manually.

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Some common misconceptions about the taproot

There are a couple of misconceptions that tend to occur when talking about Taproot and they help clarify the upgrade.

• Taproot isn’t an entirely new cryptocurrency. It is not a standalone blockchain, coin or token but an upgrade to the existing bitcoin protocol. All BTC stored in a Taproot address is the same Bitcoin as BTC stored in a Legacy or SegWit address.
• Taproot does not necessarily imply anonymity. Taproot does not obscure the amount, the sender or the receiver from the blockchain’s analysis as a privacy-focused coin would do, but it does give transactions a more uniform appearance, which adds to the privacy. Taproot isn’t going to prohibit chain analysis companies from determining transaction flows, it simply eliminates one of the indicators which made a more complicated transaction easy to spot.
• There is no need to upgrade without delay to Taproot. As it was a soft fork, node operators and wallet providers supported it when they wished. Others have been added months or years after release, and a couple have yet to be added, so it’s still worth checking the compatibility of services before sending to a Taproot address.
• Ordinals and BRC-20 tokens are not Taproot, but rather tokens that are built upon it. These are applications created with the scripting flexibility Taproot introduced but not part of the core upgrade. While taproot made them technically possible, the upgrade itself was not intended with inscriptions or token standards in mind but rather with privacy and efficiency in mind.

Is Taproot Good for Bitcoin?

Technically, a large number of the Bitcoin development community believes that Taproot is a positive development. It offers real-world uses where it also enhanced privacy and can save costs, while leaving existing users of Bitcoin unaffected if they choose not to use it. No requirements for migration along with no risk of funds in older address types.

The impact of the upgrade has been more of a gradual improvement than a dramatic one in the real world. Taproot did not change the way the typical user transacts Bitcoin in their daily lives, but it has primarily benefited more advanced types of users: multisig wallet operators, Lightning Network node runners, and developers creating new applications on top of Bitcoin’s scripting capabilities. 

The benefits of sending BTC from a Taproot address, compared to one from a Native SegWit address, are quite negligible to most casual users, but they do add up to those with more complex setups.

Although some services will adopt Taproot slowly, rather than all at once, as wallet support continues to expand and more and more services will support it by default, share of the total network traffic should continue to rise, albeit slowly.

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Conclusion

Buy BTC at the best price

Taproot does not alter the appearance of Bitcoin in any way; it just affects a lot of the things that go on below the surface. The update offered Bitcoin a quieter and cheaper method to process intricate transactions, and maintained backward compatibility with wallets that have not updated. 

As the adoption of the cryptocurrency continues to expand throughout the ecosystem, it’s important to know what a “bc1p” address is, whether you’re just storing your BTC in a basic wallet or you have a multisig setup. If you’d like to follow the live Bitcoin price action and market activity, you can find it on the BTCC Bitcoin price page, where you can see the price action of Bitcoin during the process of Taproot adoption.

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