Life After Taproot: The Coming Age Of Narratives For Bitcoin Innovation & Governance

October 21, 2021 Ninos Mansor

Taproot is the first change to Bitcoin since 2017. It will introduce Schnorr signatures, Merkelized Alternative Script Trees (MAST) and a reformed scripting language known as Tapscript. Collectively, these upgrades will make the Bitcoin codebase simpler and unlock a number of new capabilities.

Taproot enables key aggregation: complex multi-sig transactions will now look like uni-sig transactions on-chain. Bitcoin thus becomes “more private”, obscuring complex transaction types from blockchain sleuths. In addition, Taproot makes Bitcoin more efficient by unlocking batch verification: nodes more efficiently verify complex transaction types powered by Schnorr signatures. Finally, Tapscript enhances the capabilities of Schnorr while introducing opcodes that make future upgrades more flexible.

In summary, Taproot makes Bitcoin more private, scalable and secure. It is a non-contentious soft fork. An overwhelming majority of participants agree that Taproot improves Bitcoin. Beyond these technical contributions, Taproot could represent a turning point for narratives in Bitcoin innovation and governance.

We are more compelled by Taproot as a catalyst for Bitcoin governance than the idea that Taproot is a revolutionary technology. The upgrade makes marginal contributions to the protocol, but could more importantly catalyze the next major themes in Bitcoin politics. The post-Taproot era leaves behind the PTSD of 2017’s Block Wars, highlighting the continued vibrancy of Bitcoin’s political body.

As the crypto cycle progresses, the market has taken to the idea that Bitcoin is “stuck”, outpaced by innovation elsewhere. Participants interpret post-2017 conservatism as stagnation. We have a fundamentally different take: that Bitcoin politics is more alive than ever before, and that Taproot debates capture this aliveness. Taproot’s activation will be the culmination of four years of discussion following 2017. Despite being non-contentious, the upgrade has spurred a fresh discussion on how to digest 2017’s lessons and juggle power between developers, miners and nodes going forward.

This post-Taproot era introduces new opportunities for Bitcoin evolution, but also highlights growing risks. As Bitcoin enters the sphere of nation state actors and powerful technologists, the network will face new pressures. We speculate that high-trust and well-resourced actors will lead fresh proposals for change that appear far more “reasonable” than the proposals in 2017’s civil war. These could represent covert threats to Bitcoin’s political stability. The debate between technical hardliners and progressive incumbents will likely intensify over the coming year, again shining a light on the robust nature of Bitcoin governance and potentially making the protocol more defensible in the long run.

The next set of debates about stability versus change will force hardliners to sharpen their defense of Bitcoin’s non-negotiables, while motivating incumbents to pursue fresh and increasingly aggressive narratives about evolution.

Within this new chapter for Bitcoin, we think the network will slowly find its place in broader Layer 1 (L1) and Layer 2 (L2) developments, at some point defining its identity in the new “multi-chain” landscape. Taproot (in our view) doesn’t introduce “Bitcoin-native DeFi” or “smart contracts on Bitcoin”, but it will likely motivate burgeoning L1s and mobile, multi-chain developers to explore Bitcoin-centric innovation. This presents new opportunities as well as new risks – how the network digests these discussions will be an important signal going forward. At the same time, Taproot’s contribution to the privacy of Lightning channels could further invigorate Bitcoin’s L2 story, just as the Lightning network shows signs of a mainstream “breakout”.