CNBC reported that Bitcoin had received its first major update in four years. The update primarily concerns the improvement of transactions' privacy and efficiency. It will also unlock the potential of smart contracts, which will provide the ability to conduct transactions without intermediaries.
The first innovation of the Taproot update relates to digital signatures, which are like a unique fingerprint on every transaction. Previously, Bitcoin used the Elliptic Curve Digital Signature Algorithm, which generated a signature from the wallet's private key. It made sure that only the rightful owner could spend the cryptocurrency.
Taproot introduces Schnorr signatures, which lets you combine several signatures into one for one transaction and makes the multi-signature transactions unreadable. In addition to the greater anonymity of transactions, simple transactions will now not differ from complex ones.
After the update, the keys will be more confidential and less visible in the transactions chain, increasing privacy significantly.
Signatures will also expand the use of Bitcoin-based smart contracts – special transactions stored on the blockchain and automatically executed when predetermined conditions are met, like the next payment date. With the Taproot update, smart contracts will become cheaper and smaller, taking up less space on the blockchain.
The update was supposed to be released in June, but the developers decided to spend more time testing it to prevent crashes, so the update is being implemented now.
Bitcoin received its previous update in August 2017 with an introduction of the SegWit function, which solved the problem of transaction plasticity.