20.12.2024
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The Taproot Assets Protocol launched mainnet alpha in October 2023 to bring digital asset issuance to Bitcoin.
Read on to learn about Taproot Assets and its impact on Bitcoin.
The Taproot Assets Protocol is a Bitcoin layer focused on asset issuance, enabling users to issue digital assets, ranging from stablecoins to digital collectibles and more. All issued assets are secured by the Bitcoin base layer.
Once assets are issued on Taproot Assets, users can transfer them over the Lightning Network, allowing them to benefit from the Lightning Network’s low-cost, high-throughput, and near-instant transactions.
The Taproot Assets Protocol was launched by Lightning Labs in 2022 and is currently in the alpha stage of development. It was previously known as Taro.
Asset creation on Taproot entails embedding metadata within an existing Bitcoin Unspent Transaction Output (UTXO), which refers to the coins left in a wallet after a bitcoin transaction is executed.
The protocol also provides efficiency by allowing issuers to create and transfer multiple assets in a single UTXO. Taproot Assets stores asset metadata off-chain to minimize the on-chain footprint on the Bitcoin base layer.
As the name suggests, Taproot Assets leverages the 2021 Taproot upgrade to the Bitcoin code. So, to learn how the Taproot Assets Protocol works, you should first know a few important details about the Taproot update.
Taproot is a soft fork (protocol upgrade) implemented in November 2021 through the Bitcoin Improvement Proposal (BIP) process. The upgrade consisted of the following three BIPs:
Schnorr is a digital signature scheme that introduced computational efficiency and better storage through key and signature aggregation. That means parties using a multisig wallet can combine their public keys and signatures to create one public key and a single signature. This property also enhances the privacy of the multisig participants by obscuring the individual public keys and the number of participants to the transaction.
The original digital signature system, the Elliptic Curve Digital Signature Algorithm (ECDSA), required owners of a multisig wallet to prove asset ownership with three public keys and three signatures. This required extra computational power and storage as Bitcoin nodes had to verify each signature and key. Schnorr was created to be backward compatible with ECDSA to enable seamless adoption.
Digital signatures prove asset ownership and authorize transfers to other wallets. BIP 340 also enhanced efficiency and storage by allowing multiple signatures on a single transaction to be verified in batch.
TAP utilizes Schnorr Signatures to scale Bitcoin.
Taproot introduced the Merklized Alternative Script Tree (MAST), which stores different spending conditions (scripts) in a Merkle tree, where only the used script needs to be revealed during spending. This reduces the amount of data stored on the blockchain compared to revealing all possible spending conditions upfront, improving storage efficiency and minimizing fees.
Furthermore, Taproot boosted privacy by enabling only the fulfilled conditions of a spending UTXO to be publicly visible while the unexecuted conditions remain private.
BIP 341 also established a new way of spending Bitcoin called Pay-to-Taproot (P2TR). It essentially lets users lock their Bitcoin to either a simple public key or a complex Merkle tree of spending conditions, offering flexible and privacy-enhancing ways to control how funds can be spent.
The Taproot Assets Protocol leverages the upgrade’s privacy feature, allowing users to attach data to a UTXO without disclosing the information on-chain. It also uses a Merkle Tree variant known as the Merkle Sum Sparse Tree to commit an asset’s data.
Tapscript upgraded the Script programming language by introducing new scripts needed to verify Schnorr Signatures and Taproot spends.
Issuers must run a Taproot Assets client to create digital assets. This process involves attaching metadata (e.g., asset name and supply) to a Bitcoin UTXO and submitting it for confirmation. Once the transaction is confirmed on the Bitcoin base layer, the asset is considered live and will reside on the Bitcoin blockchain forever.
The transaction used to create an asset on Taproot Assets looks like any other Taproot transaction on the blockchain.
The Taproot Assets Protocol is compatible with Lightning, enabling users to open Lightning Channels, where they can send and receive payments denominated in a TAP-based asset. Taproot Assets channels are specified as a bitcoin Lightning Improvement Proposal (bLIP): https://github.com/lightning/blips/pull/29.
The protocol also allows Lightning nodes to earn more transaction fees by providing atomic swaps (smart contract-powered P2P token conversions) between Bitcoin and Taproot Assets.
A Taproot Assets Universe is a database that holds information about assets and their proofs. For instance, it generates information about the assets that have been issued, proofs of their recent transfers, and the asset’s rules.
A Taproot Assets Universe is similar to the Bitcoin block explorer. However, it showcases off-chain transaction data validated against the data recorded on the Bitcoin blockchain.
Asset issuers can run their own universes or appoint someone to run them.
Let’s break down Taproot Assets’ strengths and weaknesses.
While Taproot Assets isn’t the only project bringing asset issuance to Bitcoin, it’s a promising project that will help scale Bitcoin by increasing the blockchain’s utility.
Increasing Bitcoin’s utility by introducing more use cases, such as digital asset issuance, is required to attract more people to the Bitcoin ecosystem. That is why Bitcoin layers like Taproot Assets and BitcoinOS are essential for the future of Bitcoin.
The Taproot Assets Protocol’s compatibility with the Lightning Network also means that users don’t have to worry about high transaction fees on the main chain because they can always deposit assets in a Lightning channel and make low-cost payments.
While it's still early days for Taproot Assets, you can already dive into the brave new world of digital assets secured by Bitcoin by purchasing and staking Sovryn’s governance token SOV to have your say and gain from Taproot Assets integration and launch at Sovryn.
Taproot is an upgrade that went live in November 2021 to scale the Bitcoin blockchain. It introduced data storage efficiency through Merklized Alternative Script Trees and Schnorr Signatures. It also brought increased transactional privacy to Bitcoin.
Although the changes it provided were not major, Taproot has been adopted by various projects, like Taproot Assets, RGB, and Ordinals, extending its impact on a larger scale.
Yes. Taproot is good for Bitcoin because it enhances data storage efficiency via Merkle Alternative Script Trees and Schnorr Signatures. This essential development can ultimately help minimize fees and reduce the resource demands for full nodes.
Taproot also provides a privacy feature that makes complex transactions appear like normal transactions. As a result, users who don’t want all their transaction details published publicly can use Taproot.
Taproot Assets, formerly Taro, is a Bitcoin layer built by Lightning Labs to bring asset issuance to Bitcoin. It utilizes the Taproot upgrade and is compatible with the Lightning Network.
Assets are created by embedding metadata to a Bitcoin Unspent Transaction Output (UTXO). Taproot Assets stores metadata off-chain to lessen the on-chain footprint.
You can create and issue fungible tokens, security tokens, or non-fungible tokens with Taproot Assets by attaching data to an Unspent Transaction Output (UTXO). All digital assets created with this Bitcoin layer protocol are secured by the Bitcoin blockchain.
You can also send and receive payments denominated in a Taproot Assets token or a stablecoin using the Lightning Network. This feature allows users to leverage Lightning’s fast, low-fee, and high-volume transactions.
Taproot is a 2021 Bitcoin upgrade implemented to scale Bitcoin by making data storage more efficient and, subsequently, lowering fees.
Taproot helps Taproot Assets scale Bitcoin thanks to the data storage efficiency provided by Merklized Alternative Script Trees (MAST) and Schnorr Signatures. MAST compresses complex transactions into a single hash, while Schnorr signatures enable public key and signature aggregation.
Furthermore, Taproot’s privacy feature allows Taproot Assets to commit an asset’s data without revealing the information on-chain.
