Breaking Down Taproot: How Will The Latest Bitcoin Upgrade Benefit You Now And In The Future?

The latest Bitcoin upgrade was activated on Sunday, November 14th. Taproot brings a lot to be excited about: enhanced privacy and cheaper multi-signature transactions right now and even more powerful upgrades in the future. All that has been written about it might seem quite technical, but you don’t need to worry about understanding its technology. If you are a Trezor Suite user, getting started is smooth and safe. This article aims to help you know what Taproot can do for you and when is the right time to get your Taproot address.

Do I need Taproot right now?

You can leverage Taproot straight away if you are actively using your account in a multisignature setups and want to enhance your privacy and save on fees – that’s what Taproot is most useful for right now. For now, other types of users (e.g. pure hodlers) won’t necessarily benefit from migrating their coins to a Taproot address.

The main benefit for all Trezor users will arrive in 2022, when Trezor Suite implements CoinJoin – a privacy-enhancing feature that lets users obfuscate their transaction history, making surveillance much more difficult. The Trezor CoinJoin will only be available for users with coins at a Taproot address, as this latest upgrade makes CoinJoin possible for hardware wallets.

Taproot tips & tricks

• if you’d like to try CoinJoin as soon as it’s available in Trezor Suite, you can already migrate a portion of your coins to the new Taproot address – and the current low-fee environment is an optimal time for that!
• since you’re doing a self-transfer, you don’t have to aim for next-block confirmation; set a low fee of 1 or 2 sats/vB! If you’re unsure what fee to set, use Trezor Suite’s fee estimator or check out Mempool. space’s “low priority” recommendation.
• funds on your new Taproot address are secured by the same PIN, Passphrase, and Recovery seed as you’ve previously set up; no need to write down anything new!

Unfortunately other entities on the market (e.g. exchanges) are not that motivated to implement Taproot straight away and a situation similar to SegWit activation four years ago may repeat. It took several years to implement SegWit in most Bitcoin transactions, and it will probably take another several years to fully implement Taproot.

How do I get a Taproot address?

Trezor Suite allows you to generate your own Taproot address from version 21.12.2. To get the latest Bitcoin address, just navigate to Accounts, then select the plus sign to add a new account, and choose Taproot from the drop-down selection:

Creating a Taproot account type in the latest Trezor Suite.

From now on, you have an option to generate fresh Taproot addresses! You might notice that these addresses are a bit longer than the SegWit addresses and the leading characters are “bc1p“, whereas SegWit addresses always begin with “bc1q“.

Why did Trezor adopt Taproot so early?

The long-term mission of Trezor is to empower individuals in a three-pronged approach: usability, security, privacy. Taproot and the possibilities it unlocks are a major improvement in terms of privacy, which ultimately leads to an increased level of security. Taproot underwent a robust peer-review process over the course of several years and is thus safe for bitcoiners to use right now. There simply wasn’t any excuse for Trezor not to implement this powerful upgrade.

The most pressing motivation to implement Taproot early on was to provide Trezor users with the option to use CoinJoin in an understandable manner, straight from the safety of their device. CoinJoin will be implemented in the Trezor Suite in the course of 2022.

What’s next for Bitcoin after Taproot?

The way that Taproot upgrade was developed and implemented allows for future extendability and many powerful features can thus be unlocked in the coming years.

As Bitcoin core developer Gregoxy Maxwell explained in a Reddit post:

“fairly large amount of known-useful functionality was stripped out of the taproot proposal in order to have something that was entirely free of new research or difficult trade-offs in order to get it done quickly and get feedback from real usage that could inform the next version”

One of the most exciting future Taproot-enabled upgrades is called Cross-input signature aggregation (CISA). Under the current iteration of Taproot, it becomes possible to aggregate multiple signatures spending one input into a single signature – making complex transactions such as multisigs and Lightning Network channel management more private and cheaper.

CISA would allow for signatures of multiple inputs to be aggregated into a single signature. While this may sound like a minuscule improvement over the current signature aggregation, its consequences would be massive in terms of fee savings and user privacy.

First of all, ordinary Bitcoin transactions would benefit from CISA, as even simple spends can involve multiple inputs: every time a user spends a larger amount of bitcoin than they ever received in a single transaction (i.e. they have no single unspent transaction output- UTXO – of sufficient denomination), they inevitably need to use multiple inputs in their transaction. Currently, every single input must be accompanied by an individual signature, taking up scarce blockspace that needs to be paid for in transaction fees. With CISA, only one signature would be required even if multiple inputs were used, with major blocksize and fee savings.

CoinJoins would benefit heavily from CISA, as a CoinJoin round is essentially a single transaction with many inputs. With cross-input aggregation in place, CoinJoins would become much cheaper to participate in, even to the point where CoinJoin spending could become slightly more fee-efficient than an ordinary spend. This incentive would greatly expand the CoinJoin anonymity set over where it stands today (one of the most popular CoinJoin pools – Samourai Whirlpool – only contains 4,350 BTC at the time of writing, per Clark Moody’s dashboard).

Lastly, cross-input aggregation would mean that UTXOs of small denominations (hundreds or lower thousands of satoshis) would be cheap to consolidate and construct a larger-denominated UTXO from. But please note that this would only apply to UTXOs on Taproot addresses – the “dust” on the legacy or SegWit addresses wouldn’t be helped by this.

CISA wasn’t part of the current Taproot iteration mainly because more time is required to understand all its consequences (see the second half of this Reddit post for CISA’s pros and cons).

What other features will Taproot unlock in the future?

Besides CISA, there are other technologies building on Taproot that are being considered for future implementations. These include:

• Graftroot: technology that would allow for delegation of the right to spend from an address and could become very useful, for inheritance planning, for example, where the owner could devise various ways of handing over their coins to their survivors in a private manner;
• OP_CAT: Bitcoin opcode (a piece of code defining the spending conditions for a given address) that could make Bitcoin resistant to a theoretical threat of quantum computers;
• SIGHASH_ANYPREVOUT: a proposed change to a scope of Bitcoin signatures, where only certain elements of the transaction would need to be immutable. While the details are a bit technical, the result of this change could be an implementation of Eltoo – an improvement in how the Lightning Network payment channels work that would greatly benefit its users.

Summary

Increased privacy at lower cost, quantum resistance, and an improved Lightning Network – these are some of the most promising areas that future Taproot iterations will bring over time. And while some companies in the Bitcoin space might be slow to adopt these upgrades, Trezor is at the forefront of implementing Taproot for the benefit of its users.