Bitcoin - Native SegWit vs Taproot: A Comprehensive Guide for Beginners

In this beginner’s guide, you will learn about Native SegWit and Taproot and their impact on Bitcoin.

Native SegWit and Taproot are both upgrades that the Bitcoin network underwent to address its scalability challenges. Native SegWit, an upgrade of SegWit (Segregated Witness), consists of Bitcoin addresses created to address the issue of network congestion caused by Bitcoin’s block size limitations.

Four years after the SegWit update, the Bitcoin network underwent another upgrade known as Taproot. Taproot is an upgrade created to streamline the processing of BTC transactions to make them more efficient in terms of cost and speed.

You can swap, manage, and even earn Bitcoin (BTC) using Trust Wallet. You can also sell or buy Bitcoin using Trust Wallet in a few simple steps. Here’s an example of how to buy BTC using Trust Wallet.

• Select the “Buy” button, from the wallet’s Home screen.

• Choose Bitcoin (BTC), and enter the amount you wish to purchase.

• Select the third party provider & payment method you’d like to use.

• Select “Buy BTC”, and then follow the steps to complete the purchase.

What is Bitcoin and Why Does It Need Upgrades?

Bitcoin (BTC) is an open monetary network that allows anyone with an Internet connection to securely store, send, and receive money digitally without the need for a payment processor or a bank.

Instead of relying on a centralized financial intermediary to operate efficiently, Bitcoin relies on a distributed, peer-to-peer (P2P) network to function and process transactions.

Anyone can join the Bitcoin network as an active participant by running a node, mining bitcoin, or transacting in the cryptocurrency. No account registration or paperwork is required due to Bitcoin’s permissionless and decentralized nature.

Bitcoin’s underlying technology, the blockchain, also paved the way for the creation of thousands of other digital assets, giving rise to the Web3 movement.

However, while Bitcoin has remained the biggest cryptocurrency by market capitalization, it hasn’t been void of technical challenges.

Scalability has arguably been Bitcoin’s biggest challenge due to the Bitcoin blockchain’s limited block space, which only allows for - on average - seven transactions per second. This has made it difficult for Bitcoin to become a scalable network for processing transactions and payments.

As the network’s popularity grew, transferring BTC on-chain became an expensive, inefficient, and slow process. These inefficiency issues resulted from the Bitcoin network's design, which was not built to handle large volumes of transactions.

However, for Bitcoin to remain competitive in the blockchain space and as a digital payment network, there was a need to develop solutions that would increase the network’s throughput.

Enter Bitcoin wallet address upgrades.

Bitcoin wallet address upgrades, such as Native SegWit and Taproot, have played a significant role in providing solutions designed to address the scalability issues facing the Bitcoin network and help the digital currency to reach mass adoption.

Understanding Transaction Types

In the early days of Bitcoin, people could only access one specific kind of address, now known as Legacy addresses. Between 2016 and 2017, the debate around Bitcoin’s block size began to gain momentum as the price of bitcoin rallied and network usage grew significantly. The Bitcoin network, at the time, could only support a maximum block size of 1MB.

This block size limited the number of BTC transactions that could be added to the network at any time. Over time, the weight of all transactions led to network congestion, resulting in slow transaction confirmation times and high transaction fees.

To solve this, developers introduced the Segregated Witness proposal, which launched in 2017 via a soft fork. SegWit reduced the size of each BTC transaction's data. It achieved this by separating part of the transaction signature data from the actual transaction data. This made transactions lighter in size, allowing for more transactions to fit into a block. SegWit wallet addresses start with “3”.

SegWit made transactions on the Bitcoin network faster and more scalable, lowering transaction fees. This upgrade also made way for Layer 2 scaling solutions, giving birth to the Lightning Network.

SegWit would later undergo an upgrade known as Native SegWit. Unlike Legacy addresses and its predecessor, Native SegWit focused on weight efficiency, which reduced the size/weight of a Bitcoin block.

By being more weight-efficient than SegWit, Native SegWit resulted in faster transaction speeds, which improved the network’s scalability and further lowered the fees charged per transaction. Unlike Legacy addresses, it made BTC addresses lowercase for enhanced readability and better error detection. Native SegWit wallet addresses start with “bc1”.

However, because Bitcoin protocol upgrades are continuous, in 2021, the Bitcoin network underwent another upgrade, resulting in the creation of Taproot wallet addresses.

Taproot was designed to help streamline the process of verifying transactions, thereby making them more affordable and faster.

Unlike Native SegWit, implementing Taproot to the network allows signature aggregation. Here, multiple signatures could be lumped together and validated at once. It also enhanced privacy as it made it difficult to tell apart single-signature and multi-signature transactions.

Transaction types in the Bitcoin network play a crucial role in the Bitcoin ecosystem. This is because everything is designed to guarantee that transactions can be created, transmitted, validated, and added to the Bitcoin blockchain. Moreover, different transaction types help to solve various efficiency issues faced by the network.

Native SegWit vs Taproot: The Key Differences

Although Native SegWit and Taproot address the scalability issues faced by the Bitcoin network, they have several key differences. Let’s look at them next.

Efficiency

Native SegWit reduces the size of the transaction but doesn’t support signature aggregation, while Taproot allows for more efficient transactions that lower the cost and size by batching multiple signatures together.

Cost

Native SegWit transactions are cheaper because they contain less data, whereas Taproot transactions are more expensive due to their larger data size.

Privacy

Native SegWit has no additional privacy features, while Taproot improves user privacy by making multi and single-signature transactions appear indistinguishable.

Smart contract functionality

Native SegWit doesn’t feature smart contract capabilities, while Taproot features complex smart contracts that require fewer resources.

Conclusion

Protocol upgrades like Native SegWit and Taproot have been designed to enhance the Bitcoin network’s efficiency, scalability, and privacy, paving the way for a higher on-chain transaction throughput.

By improving transaction speeds and reducing transaction costs, protocol upgrades like Native SegWit and Taproot are helping Bitcoin on its path to mass adoption.

And remember, you can buy, sell, swap, and manage Bitcoin using Trust Wallet.

Frequently Asked Questions

Are transactions between different address types like Legacy, SegWit, Native SegWit, and Taproot compatible on the Bitcoin network?

Yes, transactions between different address types are compatible on the Bitcoin network. However, the efficiency benefits such as reduced transaction size and cost are optimized when both sending and receiving addresses are of the newer types like Native SegWit or Taproot.

What are Native SegWit and Taproot, and why were they introduced to the Bitcoin network?

Native SegWit and Taproot are protocol upgrades introduced to address Bitcoin's scalability issues. Native SegWit, an evolution of SegWit, helps reduce network congestion by creating new types of addresses, while Taproot streamlines transaction verification, making transactions faster and more cost-efficient.

How do Native SegWit and Taproot differ in addressing Bitcoin's scalability challenges?

Native SegWit reduces transaction size without supporting signature aggregation, thus lowering transaction costs. On the other hand, Taproot allows for signature aggregation, which batches multiple signatures together for more efficient transactions, albeit at a potentially higher data size.

What impact do Native SegWit and Taproot have on Bitcoin's privacy and smart contract functionality?

Native SegWit doesn't offer additional privacy features or smart contract capabilities. Conversely, Taproot enhances privacy by making single and multi-signature transactions indistinguishable and supports complex smart contracts requiring fewer resources.

How have the upgrades like Native SegWit and Taproot contributed to Bitcoin's path towards mass adoption?

By improving transaction speeds, reducing costs, and enhancing privacy, upgrades like Native SegWit and Taproot are significant steps towards increasing Bitcoin's on-chain transaction throughput, thereby aiding Bitcoin in its journey towards mass adoption and wider usability.

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Note: Any cited numbers, figures, or illustrations are reported at the time of writing, and are subject to change.