- The codebase for Schnorr signatures and Taproot technologies were recently merged into Bitcoin Core.
- The new technologies will enable cheap and private transactions, which may further benefit other technologies like Lightning Network.
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Bitcoin Core is relatively conservative, prioritizing simplicity and security over an abundance of features. That doesn’t mean the network is the same as it was back in 2009, however.
After the release of segregated witness (SegWit) in 2017, it was revealed this week that Bitcoin has two more major upgrades on the horizon. Schnorr signatures and Taproot will offer the premier crypto network improved scalability and privacy.
Understanding the benefits of Schnorr signatures requires knowing a bit about what a digital signature is and how it’s used in Bitcoin.
A digital signature is like using a fingerprint to access data on the blockchain. Think of it as something like Touch ID: if you want to control your phone, you need to prove it’s you, so you place a finger over a sensor for verification.
When you create a crypto wallet, you receive a private and a public key. The private key is like your fingerprint, and the public key is like your phone.
You can use the private key to authorize outgoing operations from your wallet, which is called “signing.”
Currently, the algorithm used for signing is the Elliptic Curve Digital Signature Algorithm (ECDSA). This mechanism was used because Schnorr signatures were still under patent and not widely available until after February 2008.
ECDSA provides similar functionality to Schnorr signatures, but overall it’s inferior. For instance, Schnorr signatures are more secure, can enable better privacy, and save space on-chain.
Now that this new signing mechanism is coming to Bitcoin, the network will enjoy a minimum of 15% improvement in space efficiency.
Imagine you received BTC from multiple addresses, and now you want to spend them in a single transaction. ECDSA would require you to sign each individual input you received. With Schnorr signatures, however, you could bundle these transactions into a single operation.
Having one signature to replace several reduces transaction costs because you occupy less space in the block.
Another benefit Schnorr signature offers is privacy. Just as you can sign several inputs all at once, you can also create a signature that will cover users’ inputs, effectively making a joined transaction. An outside observer won’t be able to see how many people signed the transaction, which obfuscates your actions.
Finally, Schnorr signatures can be used for faster network verification by allowing batched validation.
You may be surprised, but Bitcoin has smart contract functionality. Although it’s much more primitive than what Ethereum offers, it still enables fast payment sidechains like Lightning Network.