How Taproot can benefit hardware wallets

The latest Bitcoin upgrade-Taproot-will change the way Bitcoin works and take it to the next level. It changes the transaction signature method, removes unnecessary information exposure (such as whether it involves smart contracts), and also reduces the overall amount of data that a transaction needs to occupy. Therefore, it has a positive impact on user privacy, and also enables more complex transactions to be packed into a block, which improves the efficiency of the network.

Although Taproot is backward compatible, it means that users don’t need to do anything to use it, and miners need to promise to upgrade the software. The “Signalling for Taproot (Taproot Upgrade Promise)” campaign has started last week. So far, 6 mining pools have indicated that they are ready to upgrade, and SegWit will upgrade from version 0 to version 1. (Editor’s note: The original text was written on March 7, 2021. At the time of translation, the upgrade of Taproot was a foregone conclusion. It needs to be said that the upgrade of the Bitcoin protocol is a process, not an instant, because there is no upgrade. The nodes can also stay in the network.)

Although many people are expecting Taproot to bring as good privacy and scalability improvements as in theory, some people worry that it will follow the first implementation of Segwit. Two years after the activation of the soft fork, acceptance It’s worth breaking through 50%.

The purpose of this article is not to compare the advantages and disadvantages of Taproot. Many blogs interested in this have explained the main opinions in depth, such as this approachable article from Braiins, the operator of SlushPool. Our consideration is quite singular, that is, what Taproot upgrade means for hardware wallets, and what interesting things can be expected if Taproot can be successfully activated in November.

Taproot fits Bitcoin’s conservatism

Whether you like it or not, one of the governance rules of the Bitcoin network is that the block size is limited. This means that a block can only fit about 3000 transactions, which translates to a throughput of about 5 transactions per second. In terms of absolute value alone, this number is quite low, but there are many reasons to defend it, which can explain why this trade-off is better than other more centralized solutions:

  1. The transaction is cleared within a period of time, unlike debit cards, which have to wait for confirmation from a third party
  2. Upgrades such as the Lightning Network can compress thousands of off-chain transactions into one on-chain transaction
  3. No one can cancel, reverse or intercept a transaction that is already on the chain

Some Bitcoin critics have proposed increasing the block size, but this is a naive and dangerous approach. On the contrary, the conservatism of Bitcoin ( Chinese translation ) has led developers to study other more elegant ways to reduce the volume of transactions and use smarter cryptography to improve Bitcoin. Keeping Bitcoin’s small blocks also indirectly achieves greater decentralization.

For ordinary users who want to run a node on their own, they can now use a cheap solution (such as a Raspberry Pi and a hard drive), or just download a copy of the Bitcoin network from an old laptop. Anyone can help verify transactions on the Bitcoin network and protect the security of the Bitcoin blockchain, regardless of location, no need to purchase new hardware and continue to add storage space, and no need to rely on centralized service providers (such as exchanges) ) Synchronize and verify the blockchain on their behalf.

After increasing the block size, the cost of running nodes for individuals will soon become prohibitive. But Taproot introduced a new signature scheme, Schnorr signature, which can further reduce the size of transactions on the basis of SegWit v0, which means that a block can be packed into more transactions. This is equivalent to increasing the block size, but it does not increase the bandwidth requirements for synchronizing a node, nor does it cause the cost of node storage to inflate, ensuring that participation in the Bitcoin network is still within the reach of ordinary users.

How does Taproot improve the hardware wallet experience?

For hardware wallets, Taproot hopes to bring higher efficiency, which is reflected in the time required to send transactions; the more the average number of inputs and outputs of the previous transaction, the greater the time savings. This is because with Taproot, the wallet does not need to spend the transaction history previously sent (usually large).

For a transaction with only one input and two outputs, using Taproot can save about 50% of the time (compared to the SegWit v0 transaction). This number looks great, but in actual use, users will not feel it. But as the number of inputs increases, the time saved also increases: if there are 100 inputs (but still 2 outputs), then the time to send transactions can be saved by 90%.

For more complex transactions with a history composed of a large number of inputs and outputs, such as CoinJoined (mixed currency) transactions, the savings are even greater. Assuming that there are 100 participants in a coin mixing, the signature time using Taproot can be dozens of times faster than the current SegWit transaction. Trezor has planned to introduce the CoinJoin feature by the end of this year, and Taproot will make these private transactions faster and easier to use.

Taproot’s benefits to multi-signature wallets, Lightning Network and smart contracts

As the users of Bitcoin become more and more diversified, using different types of addresses, two-layer schemes such as the Lightning Network, or other types of smart wallets, it becomes easier to identify the activities of a particular wallet, that is, more privacy. Precarious. Schnorr signature eliminates the need to expose smart contract scripts, makes all transactions look the same, and improves privacy.

Many companies are now using multi-signature contracts to manage funds, and many individual users are also using the Lightning Network to save on-chain transaction fees, so Taproot is an urgently needed solution that allows users to perform transactions on the chain without exposure How many participants and the fact that they use smart contracts.

As for performance, in the multi-signature contract test of Jameson Lopp’s hardware wallet, Trezor performed well even under more extreme conditions. However, as the number of signatures increases, the time for signatures is getting longer and longer, and it is completely unusable. Thanks to Schnorr’s signature, this will no longer be a problem because there is no longer a need to transmit pre-order transactions. After Taproot is activated, even the most complex multi-signature scheme can be completed in minutes or even seconds.

Use Taproot to fix loopholes in handling fee settings

Taproot has an additional benefit, patching a long-standing theoretical attack vector related to handling fees, which we describe in detail in this firmware update blog. In the current SegWit and P2SH transactions, the commission is not expressed in an explicit metadata field, but inferred from transaction data.

This leads to a loophole: the attacker can trick the user into paying an unusually huge fee, and the user may be unaware of the seemingly harmless operation. Of course, your Trezor will always display the exact amount of transaction fees, but with Taproot, all entered amounts will be explicitly included in the data that needs to be signed (this is not the case at present), thus protecting the use of less reliable The user of the fee algorithm; because when an attacker tries to lie to the wallet software of the amount entered, the signature generated by the wallet software will not be accepted by the network.

Taproot is the right step towards sustainable web growth

From an engineering perspective, the benefits of Tarproot are huge. More efficient and faster transactions will make the network easier to use and safer, while at the same time fixing loopholes in the fee setting and improving privacy. The possible drawback is that Taproot will be used as another way to identify user behavior, but this drawback will only appear when Taproot’s acceptance does not make progress. Given the enthusiastic support that Taproot has received on social networks, this shouldn’t happen.

As long as Taproot is used—the reason for this is good—identifying personal addresses becomes more difficult. Now, users have to wait for the mining pool to pave the way and publicly express support for Taproot before it activates in November. Large mining pools need to consider their users. And if they don’t show their support, their reputation may also be damaged. But in the end, if there is another soft fork activated by users, their influence will be further reduced, and the upgrade will still be activated.

Taproot is the logical next step in this industry, and Trezor supports it wholeheartedly. Hardware wallets will therefore become more efficient, and users will have more choices between security and privacy. As Bitcoin becomes more popular, the Taproot upgrade will be the key to expanding the network and welcoming global users, and Trezor is ready to deliver.

Original link:

Author: SatoshiLabs

Translation: A Jian

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How Taproot can benefit hardware wallets


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