BITCOIN NETWORK PROTOCOL UPGRADES-TAPROOT & SEGREGATED WITNESS

Bitcoin protocol: The Bitcoin protocol refers to the set of rules, specifications, and algorithms that govern how the Bitcoin network operates.ie block size, network difficulty adjustment & consensus mechanism.

Protocol upgrades: Changes in the above described rules and specifications.

Taproot:

Taproot is primarily a technical improvement to the Bitcoin network.

Taproot is a soft fork upgrade to the Bitcoin network that was activated on November 15, 2021.taproot introduces new features to the Bitcoin protocol, including improved privacy, scalability, and functionality. Taproot achieves these goals by introducing a new transaction format that enables more complex smart contracts while also improving transaction privacy.

Bitcoin is made and used primarily for store of value or medium of exchange. it is not designed to support the same level of complex smart contracts and decentralized applications however, bitcoin have basic smart contracts execution capabilities. For example multi signature transaction and time locked transaction which we have covered already in last video.

Here, we will understand it with an example.

Example:

Let’s say you want to pay a friend against some goods or services using Bitcoin. Instead of revealing the details of the transaction on the public blockchain, Taproot enables you to encode the transaction through Merkle tree in a single hashed value known as the Taproot key.

When you send the Bitcoin to your friend, the transaction appears as a simple, single-signature transaction on the blockchain. However, if your friend wants to spend the Bitcoin, they can reveal the details of the transaction by providing a witness that satisfies the conditions of the script encoded in the Taproot key.

This means that your transaction details are kept private, and only revealed to your friend when they actually want to spend the Bitcoin. This enhances the privacy of your transaction and reduces the risk of your personal information being exposed on the public blockchain.

In addition, Taproot can make Bitcoin transactions more efficient and cost-effective, by reducing the size of transactions and lowering transaction fees. This can be especially useful for small transactions, where transaction fees can sometimes be a significant percentage of the transaction value.

Explanations:

When you want to spend the Bitcoin received through a Taproot transaction, you need to disclose the details of the transaction script in order to prove that you have met the conditions required to release the funds. This is done by providing a witness that satisfies the conditions of the script.

It requires more information to be included in the transaction in order to prove that it is valid as taproot transactions are complex  This information includes the spending conditions and the details of the transaction inputs and outputs.

Taproot key: New type of public key that represent a complex script that can encode/convert various spending conditions

Witness: The witness is a piece of data that provides proof that the conditions of the script have been met.

Scripts: Scripts are programming language that is used to enable smart contracts on the blockchain network, which are self-executing contracts that can automatically execute when certain conditions are met. Also known as tapscript.

 Do miners verify taproot transaction:

Taproot transactions are indistinguishable from a regular bitcoin transaction. The miners verify the transaction by checking that it meets the consensus rules of the Bitcoin network, including the rules for the Taproot protocol. This involves checking the digital signatures, witness data, and other details of the transaction script to ensure that it is valid and meets the conditions required to release the funds.

Segregated Witness:

Seg-Wit, short for Segregated Witness, is a proposed upgrade to the Bitcoin blockchain that was implemented in August 2017. The main purpose of Seg-Wit was to address the issue of transaction malleability in the Bitcoin network and to increase the overall transaction capacity of the network.

Transaction malleability refers to a potential issue where the signature data in a Bitcoin transaction can be modified, making the transaction appear invalid to the network. This could cause confusion and potential double-spending, which would undermine the security and reliability of the network.

Seg-Wit resolves this issue by separating the signature data from the transaction data, so that the signature data can be modified without affecting the validity of the transaction. This also allows for more efficient use of the block space, as the signature data can be removed from the block without affecting the overall size of the block.

In addition to addressing the issue of transaction malleability, Seg-Wit also enables other important improvements to the Bitcoin network, including increased transaction capacity and more efficient use of the block space. It has been widely adopted by the Bitcoin community, and is considered a key step in the evolution and development of the Bitcoin network