What is the Bitcoin Taproot upgrade and what is its impact?

A key feature of the Bitcoin blockchain network (and all blockchains, for that matter) is that it is a public digital ledger, and all transaction data is publicly available. This allows Bitcoin to be fully decentralised. 

The downside of this transparency, however, is that anyone can access and extract transaction data from the network. While there are internal protocols and privacy measures in place, as well as techniques like coin mixing that one could use to conceal transaction data, they aren't solid enough to prevent someone from acquiring and publishing it. One reason for implementing Taproot was to enhance the privacy and security of sensitive user data by allowing only essential transaction data to remain public.

Speed and performance were other issues with the Bitcoin network that Taproot aims to solve. The cryptographic signature technology that was used to record keys and signatures of transactions before Taproot had a longer commit time and took up more space on the network. The new Bitcoin Taproot signature (called Schnorr signature technology) aims to enhance speed and performance.

Schnorr signature technology also introduces a method called "key aggregation". In scenarios where multiple keys are used to sign the same message (called multiple signature or multisig transactions), Schnorr technology combines the keys into a single signature before committing it to the blockchain. This reduces the time and size of multisig transactions.

Taproot also enables smart contracts on the Bitcoin network. A smart contract is an algorithm executed when predetermined conditions are met and does not need an intermediary to execute. This makes them fast and instant and allows developers to automate certain functions.

Bitcoin's last significant upgrade, SegWit, was implemented to enhance the network's security. Taproot adds to the security enhancements introduced through SegWit by implementing a feature called Merklized Alternative Script Trees (MAST). MAST enables the network to only commit the executed conditions of a smart contract transaction to the blockchain rather than all contract details. By exposing limited details, MAST enhances data privacy.

It's been less than a year since Taproot was implemented, and we will know the full extent of its impact over the coming years. In general, Taproot opens the doors to smart contract functionality on the Bitcoin blockchain, allowing developers to build DeFi products that will enhance the usability of the network. The upgrade also makes the transactions on the network lighter and faster, which is expected to lead to higher efficiency and reduced transaction fees for users.