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Bitcoin Taproot Update is a Game Changer! The Bitcoin Taproot Upgrade Is Finally Activated! - YouTube
Channel: The Newbie Investor
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Taproot is the latest upgrade to Bitcoin and it聽
was just released. It is the biggest upgrade in聽聽
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4 years and it brings some massive changes聽
that will solidify Bitcoin's place as the聽聽
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number one cryptocurrency. If you want to learn聽
more, smash that like button and keep watching.
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First of all, Taproot is a soft fork. If you don't聽
know what a fork is, well, it happens at a point聽聽
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where the blockchain is copied and modified,聽
essentially creating two different versions of聽聽
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the blockchain. This actually applies to all聽
software and often happens in non-blockchain聽聽
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open source projects. Now, a soft fork means聽
that the new version is backwards-compatible,聽聽
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meaning that the non-upgraded blockchain nodes聽
can still communicate with the upgraded ones.聽聽
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In comparison, hard forks remove that ability聽
so nodes that do not upgrade cannot participate聽聽
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in the new blockchain. In this case, the soft聽
fork will enable the Bitcoin network to continue聽聽
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working without breaking anything and gives plenty聽
of time for all of the nodes to gradually update.聽聽
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Also, the soft fork only becomes active when聽
the majority of the miners and nodes upgrade聽聽
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to the new version, which essentially聽
becomes the release date. In this case,聽聽
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that was Sunday, the 14th of November, 2021,聽
when 90% of miners locked in the Taproot upgrade.
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So, what does Taproot bring to the table? Well,聽聽
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Taproot will essentially improve three aspects聽
of Bitcoin. Scalability, privacy, cost, which聽聽
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altogether will massively improve Bitcoin's聽
smart contract functionality. Let's start with聽聽
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scalability. The Taproot upgrade enables the full聽
functionality of the Lightning Network in Bitcoin.聽聽
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If you haven't heard of the Lightning Network, it聽
is essentially a layer 2 payment protocol that is聽聽
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layered on top of blockchain-based currencies聽
like Bitcoin. It was first used in 2017 with聽聽
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Litecoin to make microscopic payments that Bitcoin聽
could not support. Then, in January of 2019, the聽聽
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Lightning Network was tested in a very promotional聽
way where small payments were sent from one person聽聽
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to the next with each new participant adding ten聽
thousand satoshis which was about $0.34 US dollars聽聽
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at the time. It did serve to show that you could聽
make fast, low-cost payments with Bitcoin, but聽聽
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the functionality was still not fully developed.聽
Taproot will enable Bitcoin to take full advantage聽聽
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of the Lightning Network and it will do that in聽
a specific way. Essentially, Taproot aggregates聽聽
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all of the keys and/or multi-signatures that聽
Bitcoin uses to perform transactions into a聽聽
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single dataset. Taproot achieves that by using聽
something known as a Schnorr signature which, to聽聽
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put it simple, allows you to combine multiple keys聽
and signatures into one unique Schnorr signature.聽聽
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Of course, this is a very simple explanation聽
of what it does, but the main takeaway聽聽
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is that it helps to reduce the Bitcoin block聽
space and therefore improves scalability.
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Now, the second benefit of聽
Bitcoin's Taproot upgrade is,聽聽
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like I mentioned before, privacy. Up until聽
now, Bitcoin used P2SH or Pay to Script Hash.聽聽
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If you don't know what a hash is, it's聽
essentially the output of a hashing function聽聽
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which takes a variable-length input and returns an聽
encrypted result of a fixed length. If you provide聽聽
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the same inputs to hashing functions, the output聽
will always be the same. But, most importantly,聽聽
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hashing functions are one-way functions which聽
means that you cannot revert or decrypt the hash聽聽
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to find out the inputs. This is very private, but聽
currently Bitcoin reveals all of these hashes when聽聽
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completing a contract so essentially we can see聽
which wallets participated in that contract. Plus,聽聽
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it also bloats the block space which makes it聽
harder to scale contracts on the Bitcoin network.聽聽
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Now, Taproot fixes that by introducing聽
MAST or Merklelized Abstract Syntax Trees.聽聽
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MAST is extremely technical so let's just say that聽
it allows multiple people to agree on a condition聽聽
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which is then turned into a single聽
unique Schnorr signature. Essentially,聽聽
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it takes all of these hashes that we just talked聽
about and puts them into a single signature.聽聽
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This signature does not even reveal to the聽
Bitcoin network that there was a contract used,聽聽
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therefore hiding all of the signature's聽
address owners and the type of transaction.
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Finally, Taproot improves Bitcoin's cost聽
by reducing fees. The reduction in block聽聽
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space that we've just talked about essentially聽
leads to lower fees for the larger, more complex聽聽
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transactions done using Bitcoin. Again, this is聽
achieved using the Schnorr signatures and MAST聽聽
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and will benefit the Lightning Network along聽
with other complex wallets and contracts on聽聽
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the Bitcoin network. This will probably not聽
have a big impact on simple transactions聽聽
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so if you're just using Bitcoin as a long-term聽
hold and a store of value, it will probably not聽聽
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affect your transaction fees that much.
However, what is really important about聽聽
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this upgrade is that, in addition to all聽
the other benefits, Taproot also lays聽聽
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the foundation for important future updates of聽
Bitcoin by adding Schnorr signatures and MAST.聽聽
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These features are extremely powerful and can聽
be used to make Bitcoin even more scalable,聽聽
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even more private and even cheaper to use. This聽
upgrade is an important milestone and one of the聽聽
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reasons why I continue buying a little bit of聽
Bitcoin every single month. But that's just me.聽聽
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What do you think about Taproot? Are you a聽
fan of the new upgrade? Let me know in the聽聽
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comments below. If you enjoyed this video, please聽
leave a like, comment, subscribe and share the聽聽
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video with anyone who may be interested.聽
Thanks for watching and keep learning!
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