The Bitcoin Taproot Upgrade Explained

Sep 24, 2025 | 7 min read

Bitcoin’s Taproot upgrade is one of the biggest improvements to the Bitcoin network since the introduction of SegWit back in 2017. The Taproot upgrade was activated on November 14, 2021 at block height 709,632. Taproot is a soft fork, meaning it is a protocol change that still works smoothly with older versions of the protocol. Taproot made Bitcoin transactions more efficient and gave developers the ability to build complex applications like smart contracts on the Bitcoin network.

Thanks to Taproot, executing complex transactions such as a multisignature setup or a contract with multiple conditions looks almost the same on the blockchain as a simple transaction like sending or receiving BTC. This makes transactions cheaper and also harder to distinguish from regular ones.

Key Takeaways

Bitcoin Taproot is a protocol upgrade that has been active since November 2021, making transactions more efficient, cheaper, and more private.
Thanks to Schnorr signatures, multiple signatures can be aggregated into one, saving space and increasing privacy.
With Pay-to-Taproot (P2TR) and MAST, only the spending condition actually used needs to be revealed, making transactions more compact and flexible.
Tapscript introduces new possibilities for building smart contracts and future-proofs the network.
Taproot lays the foundation for more complex applications on Bitcoin, such as advanced multisig, Lightning Network upgrades, and potentially DeFi structures.

What is Bitcoin Taproot?

Bitcoin Taproot is a smart upgrade to the Bitcoin blockchain that has made executing complex transactions cheaper and more private. Thanks to the introduction of a new address format (bc1p…), users can benefit from Taproot without having to take any action themselves. This means lower fees and increased privacy.

This is made possible through Pay-to-Taproot (P2TR). This system gives each transaction two possible paths: via a key path (a simple signature) or a script path (a tree structure of conditions). Thanks to a technique called Merkelized Abstract Syntax Trees (MAST), only the condition actually used needs to be revealed.

Practically speaking, this means that transactions use less data and appear cheaper on the blockchain. For users, this often translates to lower transaction fees and less information they need to disclose. For developers, it opens the door to more complex applications (such as multisig or smart contracts).

Finally, Taproot uses Schnorr signatures (BIP340). The clever part is that multiple people jointly signing a transaction can combine their signatures into one aggregated signature. On the blockchain, it looks like only one person signed. This makes transactions smaller, cheaper, and harder to distinguish from regular payments.

How did the Bitcoin Taproot Upgrade come about?

Taproot was proposed in 2018 by cryptographer Greg Maxwell. Further development came from developers like Pieter Wuille, who drafted the BIPs (Bitcoin Improvement Proposals) needed to integrate Taproot. These BIPs described what needed to be done to make an upgrade like Taproot possible. The Bitcoin community debated the details for years until consensus was reached in 2021.

For activation, a method called Speedy Trial was used to measure support for Taproot. In this method, miners had a period of 2016 blocks (about two weeks) to indicate if they agreed to the upgrade. Once 90% support was reached, Taproot was “locked in,” meaning it was prepared for implementation. This happened in June 2021, and on November 14, 2021, the upgrade officially went live.

The implementation happened via a soft fork, keeping the upgrade compatible with older nodes. This ensured the blockchain continued to function normally, and nodes that were not updated could still accept blocks. This minimized the risk of a chain split.

The role of SegWit

Taproot could never have been implemented without Segregated Witness (SegWit), an upgrade introduced in 2017. SegWit allowed signatures, also called witness data, to be separated from the core transaction data. This provided multiple benefits:

New structure for transactions: SegWit introduced witness programs that allowed new output types to be added.
More efficient blocks: With signatures removed from the main structure, blocks had more space, and transaction fees were lower.
Compatibility: SegWit created a framework that allowed upgrades like Taproot to be implemented as soft forks without splitting the network.

In short, SegWit laid the foundation on which Taproot was built. Without SegWit, the introduction of Schnorr signatures, MAST, and Tapscript would not have been possible.

Components of the Bitcoin Taproot Upgrade

The Taproot upgrade consists of different components, each playing a specific role. Together, they make transactions more efficient and add flexibility to the Bitcoin protocol.

Schnorr Signatures (BIP340)

Since Bitcoin’s creation, the network had used ECDSA signatures. Taproot introduced Schnorr signatures. These signatures are smaller—64 bytes compared to an average of 71–73 bytes for ECDSA. This makes them easier to process and brings several advantages:

Aggregation: Schnorr signatures allow multiple signatures to be combined into a single aggregated signature. This means that a multisig transaction looks the same on the blockchain as a regular transaction with only one signer. For users, this means greater privacy (it’s not visible how many people signed), and for the network, more efficiency due to less data processing.
Batch verification: Nodes can verify multiple signatures at once, making the network faster and more scalable.
Linear properties: These make advanced protocols like MuSig or threshold signatures easier to implement, since public keys and signatures can be added together. A group of participants can thus present one key and one signature instead of many.

Pay-to-Taproot (P2TR) and MAST (BIP341)

Thanks to Pay-to-Taproot (P2TR), the transaction processing is linked to a single public key. Behind that key can be a Merkelized Abstract Syntax Tree (MAST), a structure in which multiple possible spending conditions are stored. The big advantage is that only the condition actually used must be revealed. That means:

Less data on the blockchain: Saving space and reducing transaction fees.
Improved privacy: Third parties cannot see what other conditions existed, only the one used.
Flexibility: More complex smart contracts and scripts can be added efficiently.

Tapscript (BIP342)

Tapscript is a renewed scripting environment that supports the use of Taproot. It introduces:

OP_CHECKSIGADD: A new opcode that makes it easier to set up multisig constructions without the limitations of CHECKMULTISIG.
OP_SUCCESSx: Opcodes that currently have no function but can be filled in later. This provides a mechanism to safely add new functionality in the future.
Clear limits: Adjusted resource limits and signature budgets ensure that complex scripts can run safely and efficiently.

Bech32m Addresses (BIP350)

Taproot uses a new address format: Bech32m. This is an improved version of Bech32, recognizable by addresses starting with bc1p…. The advantages are:

Stronger error detection: The checksum in Bech32m was adjusted to detect and correct common input errors more quickly.
More robust design: Bech32m was specifically designed to properly support SegWit v1 and future upgrades. It prevents some valid addresses from mistakenly being seen as invalid, which was a weakness in the original Bech32.
Lower fees and efficiency: Like earlier SegWit addresses (bc1q…), Bech32m addresses use block space more compactly, lowering transaction costs.

Why was this necessary? Older address formats had several limitations:

Legacy addresses (1… and 3…): These take up more space and are more expensive to use. Errors when copying or writing them down are also harder to detect.
Bech32 (bc1q…): A major step forward but later found to have a flaw in error handling for SegWit v1. A new version was therefore needed: Bech32m.

Impact of Taproot

Taproot has had a major impact on the Bitcoin network. On the one hand, transactions have become cheaper, more efficient, and more private. On the other hand, Taproot has expanded the network’s development potential. Developers can now build more efficient multisig solutions and smart contracts without having to process everything on-chain.

It also paves the way for Bitcoin in the DeFi sector. Thanks to Taproot, more complex contracts can be created for DeFi use. Think of contracts for lending and borrowing crypto, advanced payment channels, or layered structures for financial products such as (liquid) staking.

Second-layer solutions such as the Lightning Network also benefit from Taproot, as channels can be set up more compactly and discreetly. In this way, Taproot enhances Bitcoin’s scalability and usability in a wide range of applications.

Final thoughts

Taproot marks an important step in the evolution of Bitcoin. It makes transactions more compact, cheaper, and less distinguishable, while at the same time greatly expanding the possibilities for developers. With Schnorr signatures, P2TR, MAST, and Tapscript, a foundation has been laid for more privacy, scalability, and flexibility. Although the impact for the average user is often subtle, Taproot forms the basis for future innovations such as more efficient multisig solutions, improved Lightning channels, and the first steps toward DeFi on Bitcoin.