Author: Kim Mingyu, Medium; Translated by: Song Xue, Golden Finance

Bitcoin has made significant progress, with milestones including the BRC-20 protocol, Ordinals, and groundbreaking Native SegWit and Taproot updates that address scalability issues.

Native SegWit focuses on weight optimization to improve scalability by reducing block size, while Taproot focuses on signature aggregation to simplify complex transactions, which may result in a slight increase in costs.

Native SegWit makes transactions more cost-effective due to the reduced amount of data, making it a good fit for regular Bitcoin transactions, while Taproot is suitable for more complex transactions and may result in slightly higher costs but improved efficiency.

The Bitcoin network, which has experienced tremendous growth recently, such as the introduction of the BRC-20 token standard and the Ordinals protocol, has added another major milestone to its history of groundbreaking updates, including Native SegWit and Taproot. But what exactly are SegWit and Taproot? Let’s take a look at how these upgrades solve the network’s scalability issues and the differences between the two.

Native SegWit: Simplifying Transaction Data

Native SegWit emerged as an evolution of the SegWit upgrade to alleviate Bitcoin’s scalability challenges. Its main goal is to reduce network congestion caused by Bitcoin’s block size limit.

Launched as a hard fork in 2017, SegWit effectively reduces the size of transaction data by isolating signature data and enhances transaction capacity by accommodating more transactions within blocks. Notably, SegWit addresses start with "3", significantly improving transaction speed and scalability while reducing transaction fees.

However, Native SegWit surpasses SegWit’s efficiency due to its focus on weight efficiency. This upgrade significantly reduces the size of Bitcoin blocks, further improving transaction speed and scalability. Uniquely, Native SegWit addresses begin with “bc1”, providing enhanced readability and improved error detection due to lowercase addresses.

Taproot: Improving Privacy and Efficiency

In 2021, Bitcoin underwent another major upgrade called Taproot, which aims to simplify transaction verification and improve efficiency. Unlike Native SegWit, Taproot brings a series of advanced features focused on improving privacy, efficiency, and scripting capabilities.

Furthermore, while the SegWit upgrade was introduced as a hard fork in 2017 (creating Bitcoin Cash at the same time), Bitcoin Core developers took a deliberately delayed and cautious approach to the implementation of Taproot. It was initially proposed by Bitcoin developer Gregory Maxwell in January 2018 and later developed into a draft Bitcoin Improvement Proposal (BIP) by Pieter Wuille in May 2019. In June 2021, 90% of Bitcoin miners expressed support for the Taproot upgrade, and the fork of Taproot officially entering the Bitcoin blockchain finally occurred on November 14, 2021 at block 709,632.

Structurally, the Taproot upgrade is a combination of three different BIPs: BIP340, BIP341, and BIP342.

BIP340 introduces Schnorr signatures, which replace the Elliptic Curve Digital Signature Algorithm (ECDSA). Unlike ECDSA, Schnorr signatures can verify multiple transaction signatures at the same time, simplifying the process and enhancing the privacy of multi-signature wallets. This upgrade reduces transaction size, increases network capacity, and speeds up the processing of batch transactions.

BIP341 (called Taproot) implements Merkle Abstract Syntax Tree (MAST) to optimize transaction data storage on the blockchain. MAST only stores the results of executed transactions, rather than the entire tree, improving scalability by reducing blockchain storage requirements.

BIP342 (or Tapscript) adapts Bitcoin's script coding language to accommodate Schnorr signatures and Taproot implementations. It takes advantage of the aggregate signature capabilities of Schnorr signatures and optimizes the space within transaction witnesses. While primarily supporting other BIPs during the Taproot rollout, Tapscript also simplifies the coding of future Bitcoin features, providing an important enabler for upcoming features.

The integration of Schnorr signatures (Taproot’s signature algorithm) allows for aggregation of signatures, reducing transaction data size and enabling simpler advanced protocols such as atomic swaps and payment pools.

The Differences and Advantages of Native SegWit and Taproot

The difference between Native SegWit and Taproot lies in their core functionality and the enhancements they bring to the Bitcoin network:

1. Efficiency

Native SegWit: The goal of Native SegWit is to improve the efficiency of Bitcoin by focusing primarily on weight optimization. By minimizing block sizes and reorganizing how data is stored in transactions, Native SegWit significantly enhances the network's scalability and transaction processing speed. This optimization results in a smoother and more responsive transaction experience, resulting in higher transaction throughput within Bitcoin blocks.

Taproot: In contrast, Taproot brings a paradigm shift in efficiency through its innovative approach to signature aggregation and spending condition optimization. This upgrade aims to simplify transactions by combining multiple signatures into a single signature, thereby reducing transaction data size. While this may result in slightly higher costs for some transactions due to increased data, Taproot excels in facilitating more complex transactions (such as smart contracts) with unparalleled efficiency.

2. Expenses

Native SegWit: Native SegWit transactions are known for their cost-effectiveness, primarily due to their reduced data size. This reduction translates to lower fees, providing a cost-effective solution for regular Bitcoin transactions. The optimized transaction data enables users to conduct daily transactions at lower fees than traditional transaction methods.

Taproot: Taproot's approach to transaction costs is different, as it tends to accommodate larger data volumes. While this may slightly increase the cost of some transactions, Taproot's strength lies in its ability to improve efficiency, especially for more complex transactions. Its optimization caters to multi-faceted transactions, allowing for greater functionality and flexibility, albeit with slightly adjusted costs.

3. Privacy

Native SegWit: Privacy is not a central focus of Native SegWit. While it improves transaction efficiency, it does not introduce additional privacy features. Transactions using Native SegWit addresses are more about optimizing space and processing rather than anonymizing or hiding transaction details.

Taproot: Taproot excels in the area of ​​user privacy. By integrating sophisticated cryptographic techniques, Taproot obscures transaction types and details, making them indistinguishable from one another. This advancement in privacy ensures that transaction patterns and specific details remain obscured, thereby enhancing the anonymity and privacy of users participating in various transactions.

4. Smart contract function

Native SegWit: Smart contract functionality is not included in the scope of Native SegWit enhancements. Its main goals revolve around improving transaction efficiency and scalability without delving into complex programmable contract functionality.

Taproot: Taproot is revolutionary in the world of smart contracts. With reduced resource requirements, Taproot paves the way for complex smart contracts on the Bitcoin network. It introduces complex contract execution and more streamlined resource usage, marking a major leap in Bitcoin's functionality beyond simple transactions.