Does Bitcoin Taproot soft fork increase network privacy?

in hive-160196 •  last year 

The proposed Taproot update is proof of Bitcoin's decentralized nature and the network is always looking for ways to improve to grow.
He also believes that the upgrade serves as a reminder to investors that, unlike gold, Bitcoin is a dynamic store of value in every sense.
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From August 2017 until now, after the last upgrade called Segregated Witness (SegWit) was activated, it seems that the bitcoin network has not received any new updates.

But there is one issue that the bitcoin community has been talking about for years and that is privacy. With bitcoin running on a public blockchain network, anyone can track the transactions that happen on it. For some, that's a big deal.

Users can increase anonymity through techniques such as coin-mixing (coinjoin/coin mixing). Means requiring multiple parties to enter into an agreement to mix their funds when engaging in separate Bitcoin transactions. This makes it difficult for outside parties to determine which party or party is performing a particular transaction, and it is difficult for blockchain observers to trace the path of each particular transaction. Unfortunately, however, none of these make Bitcoin a privacy currency. While Taproot doesn't quite do it, it can help increase anonymity on the network.

The Taproot upgrade has been widely anticipated as an important first step toward addressing bitcoin's lack of privacy and other related concerns. But what is Taproot and how will it benefit bitcoin?

The Taproot proposal was first announced by Bitcoin Core developer Greg Maxwell in January 2018. By October 2020, Taproot was incorporated into the Bitcoin Core library following a request made by Pieter Wuille. For the upgrade to be fully implemented, miners must apply Taproot's new consensus rules. Depending on how this happens, activation can take several months.

Taproot is a solution that combines the advantages of the Merkelized Abstract Syntax Tree (MAST) and the Schnorr signature scheme so that less information is revealed after a Bitcoin transaction takes place.

Overall, this reduces storage space and can indirectly reduce fees for these types of transactions. Additionally, in the long run, as its use becomes widespread, Taproot could significantly improve privacy for Lightning users and multi-signature users. This means that when the Lightning Network is applied, there will be countless private transactions that will take place on the second tier and then be processed one at a time and copied to the main ledger of the bitcoin blockchain, Taproot helps a lot in securing the information and path of private transactions on the Lightning Network ⚡️ thereby helping to avoid them being traced by blockchain observers.

From an ecosystem perspective, the Taproot update is a huge effort by the bitcoin developer and community to finally bring the Lightning Network ⚡️ to the mainstream for payments.

What is Taproot?

Taproot is a soft fork that improves Bitcoin's scripts to increase privacy and improve other factors involved in complex transactions. Transactions on the bitcoin network can use different features that make them more complex, like time-locked releases, multi-signature requirements, and others.
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Without Taproot, anyone can observe transactions using that complex function, which requires creating many transactions. However, the Taproot upgrade will help “hide” all the moving parts of a bitcoin transaction. So even if a transaction applies that feature, they will be the same as a single transaction. This is seen as a big win for Bitcoin privacy advocates.

Privacy is a feature of bitcoin that is expected but does not exist to a great extent in practice. Bitcoin balances and addresses are public and can be viewed on the blockchain. From there were born on-chain software companies that track the movements and storage of wallets.
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In fact, Taproot can mask an already running bitcoin script. For example, spending bitcoins with Taproot can render Lightning Network channel transactions, peer-to-peer transactions, or complex smart contracts indistinguishable. Anyone monitoring one of these transactions will see nothing but a peer-to-peer transaction. However, it should be noted that this does not change the fact that the wallets of the first sender and the last recipient will be exposed.

It is expected that Taproot will be made with another upgrade named Schnorr signature. This not only makes deployment Taproot become feasible, it also allows a feature that many people expect is synthesized signature.

Explanation of Taproot

Suppose there is a transaction with a hot key, a trusted 3rd party key, and a cold wallet emergency backup key. Typically, participants will need to broadcast all three keys as well as two signatures used to spend the funds.

However, instead of the input requiring individual signatures, the proposed upgrade would aggregate these keys into a single Schnorr signature, which would then be used to authenticate the Taproot output key.

As a result, observers of the blockchain will only see a single output without knowing which two keys have been deployed to validate the transaction. This will reduce transaction size, save fees, and improve privacy.

You can open or close a Lightning channel, a simple payment between two people, or a very sophisticated and secure smart contract, all are indistinguishable by observers on the blockchain by spending bitcoins through Taproot.

What is the Schnorr signature?

The Schnorr signature consists of a cryptographic signature scheme developed by the German mathematician and cryptographer Claus Schnorr. Although Schnorr has protected his algorithm by patent for many years, the patent officially expired in 2008. Among the many benefits, Schnorr signatures are mainly known for their simplicity and efficiency in generating short signatures.
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The signature scheme adopted by Satoshi Nakamoto (the creator of Bitcoin) is the Elliptic Curve Digital Signature Algorithm (ECDSA). The choice of ECDSA over the Schnorr signature algorithm is because it is widely used, well understood, secure, compact, and open source.
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However, the development of the Schnorr Digital Signature Scheme (SDSS) could be the starting point of a new generation of signatures for Bitcoin and other blockchain networks.
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One of the main advantages of Schnorr signatures is that they can derive multiple keys inside a complex Bitcoin transaction and generate a unique unique signature. This means that signatures from multiple parties to a transaction can be “aggregated” into a single Schnorr signature. This is the signature collection.

Conditions for upgrading

According to the consensus from the bitcoin mining community, Taproot activation is allowed if 90% of all newly mined blocks have Taproot activation signal.
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Here's the taproot.watch site that makes it easy to see the miners' acceptance of the Taproot upgrade.

  • Blue box: accept
  • Red box: do not accept
  • Gray box: waiting for pending mining

The picture shows a total of 2,016 blocks, each block takes 10 minutes to mine, so 2016 blocks equals 2 weeks, this is also the time it takes for the bitcoin network to adjust the difficulty once, and this consensus will have to take place in different difficulty adjustments (every 2 weeks) and achieve at least 90% consensus from miners between now and August 11, 2021, so that the network upgrade can go ahead as planned in November 2021.

Clicking on the blue and red boxes on the web page shows the miners who have updated the new version of Taproot to the newly mined block and vice versa for the red one.

Further comment on the privacy of Bitcoin

Transaction privacy is a necessity that every user needs but governments are increasingly disliking privacy features of coins as it becomes increasingly difficult for them to control them.

As the case where the FBI confiscated BTC from hackers.

Recently, there has been a lot of information surrounding that the US Department of Justice asked the FBI to find and recover most of the bitcoins that Colonial Pipelines company paid to the DarkSide network after this network successfully hacked into the company and demanded a ransom of nearly 5 million dollars to be paid in bitcoin to the hacker group of Russian origin.

This raises two major issues that mislead people that the FBI hacked into the bitcoin network to intercept and confiscate that transaction.

Second, the transfer of money via bitcoin is very easy to query through companies that specialize in tracking transactions via blockchain, to know exactly, which wallet addresses does that money flow to, and where that wallet address is located. In this case, the hacker group transferred money to a server and FPI has the right to freeze and confiscate that server and there is a high chance that they can hack into the server to get the private key and move that BTC to another wallet. For example, if you save BTC to your laptop, people will get your laptop and know it contains a large amount of bitcoins then what they hack is to hack your laptop to be able to get the private key and move that amount of BTC out of the laptop to another wallet address. It's not that the FBI hacked the bitcoin network and intercepted the transaction. So far, no one has been able to do that. Let's assume that if that group of hackers moves that amount of bitcoins to a cold wallet, it is very difficult for FPI to get the private key because they cannot hold the hacker's cold wallet to press the button to control the deposit. It seems that the hacker group intentionally made a lot of different transactions to try to fool FPI, but they can still be traced through observation on the blockchain.

The security issue of bitcoin is also a double-edged sword when, on the one hand, after upgrading the soft fork, observations on the blockchain can be avoided. But on the other hand, it is a point that causes "itchy eyes" to legislators because then they are much more difficult to manage and trace. Users want privacy and security, governments want control and power, anyway, next November the software will be updated by high consensus from miners, and let's continue to observe more about the latest moves in regulations they have for bitcoin.

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