What is the bitcoin taproot upgrade and why is it important?

• The Taproot upgrade makes the Bitcoin system better. It tries to improve privacy, how well it works, and its ability to handle smart contracts.

• The upgrade was activated in November 2021, following a 90% consensus among Bitcoin miners.

• Taproot is a soft fork, meaning it is backward compatible with older versions of the Bitcoin software.

The Taproot upgrade is an enhancement to the Bitcoin protocol, striving to improve the privacy and efficiency of the network. It was activated in November 2021, following a 90% consensus among Bitcoin miners. This upgrade is a soft fork, meaning it is backward compatible with older versions of the Bitcoin software, avoiding the need for a divisive hard fork.

The Taproot upgrade encompasses three Bitcoin Improvement Proposals (BIPs): BIP340 (Schnorr Signatures), BIP341 (Taproot), and BIP342 (Tapscript). These proposals strive to improve the privacy, efficiency, and smart contract capabilities of the Bitcoin network.

The Taproot proposal was first submitted by a Bitcoin developer, Greg Maxwell, in 2018. Pieter Wuille, another Bitcoin developer, is the author of the three BIPs that codified Taproot. In 2020, developers Tim Ruffing, A.J. Townes, and Jonas Nick joined the project and worked on implementing the upgrade alongside Maxwell and Wuille.

The Taproot upgrade aims to improve the privacy and efficiency of the Bitcoin network. It brings in Schnorr Signatures, which tries to offer a safe way to approve transactions that uses less data. This upgrade also uses a method called 'MAST' to put less smart contract data onto the blockchain, and it hides some private transaction information.

Also, Taproot gives Bitcoin a better programming language for transactions. This language uses Schnorr and Taproot technology.

One of the benefits of the Taproot upgrade is its potential to encourage the implementation of smart contracts on the Bitcoin network. Smart contracts can eliminate intermediaries from transactions, opening the door to decentralized finance (DeFi) for Bitcoin.

While the Taproot upgrade was activated in November 2021, its full impacts will take time to be fully realized. As more developers and users adopt and utilize the new features introduced by Taproot, Bitcoin's network is expected to become more efficient, private, and capable of supporting complex smart contracts.

This upgrade shows how the Bitcoin system is changing to meet the growing needs and problems of the digital currency world.