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A little more than two months ago, Taproot went live. What does the biggest update to the Bitcoin network in years bring to the table? How can it help the increasingly popular Lightning Network? Thatâs exactly what the article weâre about to summarize is about. It starts by informing us that âBitcoin even has a scripting language,â and that itâs called Script.
Related Reading | Number Of Bitcoin Lightning Network Nodes Jumps 23% In Three Months
But before we get into that, what is Taproot?
âTaproot is a combination of three Bitcoin Improvement Proposals (BIPs) that enhance this scripting infrastructure: BIP340 â Schnorr, BIP341- Taproot and BIP342 â Tapscript. The key of Taproot that unlocks all the others is the introduction of Schnorr Signatures, which allow for key and signature aggregation. This means that multiple parties are able combine their keys to a single public key, thereby allowing them to sign a single message.â
Itâs important to know that Taproot wonât allow âfully expressiveâ or âTuring completeâ contracts like in Ethereum and all its related chains. Nor are those kinds of contracts a priority for the Bitcoin network, as our sister site Bitcoinist points out. Also, to curb our expectations, letâs read what Tales From The Crypt podcastâs host Marty Bent warned us about in his newsletter:
âIt is important to understand that these benefits arenât going to be immediate. They are going to come to market slowly over time as the software gets implemented into wallets and other services. Many are expecting Taproot to get activated over the weekend and all its potential benefits to be realized immediately. This is simply not the case and it is important that this fact is understood.â
Ok, letâs get into the meat and potatoes.
How Does Taproot Help The Lightning Network?
First of all, every Lightning channel consists of â2 of 2 multisigsâ. So, a first benefit of being âable combine their keys to a single public keyâ is that âwe have lighter transactions and therefore cheaper channel openingsâ. Not only that but âsignature aggregation also offers enhanced privacy since its contents are indistinguishable from a single-signature transaction.â
To clear up how does this benefit privacy, letâs quote the Binance Academy:
âSpending Bitcoin using Taproot could make a transaction in a Lightning Network channel, a peer-to-peer transaction, or a sophisticated smart contract become indistinguishable. Anyone monitoring one of these transactions would see nothing but a peer-to-peer transaction. Itâs worth noting, though, that this doesnât change the fact that the wallets of the initial sender and final recipient will be exposed.â
However, this is not quite true⊠yet. The Voltage article clarifies, âDoes this mean that lightning channels are now unidentifiable on the blockchain? Well, the answer is âyesâ for private channels and ânot quite yetâ for public channels.â
BTC price chart for 01/04/2021 on Gemini | Source: BTC/USD on TradingView.com
Private And Public Lightning Network Channels
Whatâs the problem? Well, the network doesnât announce the creation of private channels. The public ones, on the other hand:
âUnfortunately, even if we do hide the channel openings on the blockchain, the current specification of the lightning protocol requires nodes to broadcast the details of the funding transactions when announcing their channels.
This might seem counterintuitive at first, but itâs also an elegant way to prevent nodes spamming the network with fake channels.â
Related Reading | How Big Is Bitcoinâs Lightning Network? The Answer Will Surprise You
Also, letâs take into account that surveillance firm Chainalysis already announced a Lightning Network-related service. We should assume there are âsybil nodes surveilling the networkâ. And that âWith enough hostile nodesâ a bad actor could paint âa fairly detailed picture of the flow of fundsâ. Well, Taproot has an elegant solution for that:
âTaprootâs introduction of Schnorr signatures paves the way for a type of smart contract called Point Time Locked Contracts (PTLCs). PTLCs operate in the same manner as HTLCs by allowing payments to be identified by nodes, but PTLCs come with a handy feature of being able to randomize its identifier with each hop thereby making it impossible for nodes to correlate the traffic of sending and receiving nodes.â
Understand that âTaproot is a door that opens many other doorsâ. Itâs a new toolkit with which developers all over the world will create new features and improvements. The info this article contains is just the beginning, the low-hanging fruit that we can see from our advantage point. Remember what Marty Bent said, âthese benefits arenât going to be immediate.â The Taproot-enabled stage of Bitcoin is just starting.
Featured Image by Cooper Baumgartner on Unsplash | Charts by TradingView
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.