SegWit & Taproot: A guide to Bitcoin's major upgrades

As the adoption of Bitcoin grew, transaction fees soared and confirmation times stretched from minutes to hours, revealing fundamental scalability constraints that threatened Bitcoin's utility as digital cash. Bitcoin’s network had hit its limits faster than anyone expected, and the coin’s popularity revealed architectural bottlenecks that demanded careful protocol improvements.

The Bitcoin community responded with two major protocol upgrades developed over several years. SegWit was activated in August 2017 to tackle immediate scalability constraints, while Taproot (November 2021) was designed to enhance privacy and enable more complex transaction types. Both solutions are built on the foundation detailed in our article Bitcoin blockchain explained.

An understanding of these upgrades reveals Bitcoin’s adaptation to growing demand without compromising its fundamental security model. Each upgrade has required years of development, thorough testing and community consensus before activation, demonstrating Bitcoin's careful approach to network changes.

Key Takeaways:

• SegWit increased Bitcoin's effective block capacity by reorganizing transaction data and enabling more transactions per block.

• Taproot introduced Schnorr signatures and enhanced privacy features, making complex transactions indistinguishable from simple payments.

• Both upgrades were implemented as soft forks, ensuring backward compatibility and avoiding network splits that could have fragmented Bitcoin's ecosystem.

• These protocol improvements laid the foundation for Layer 2 solutions, such as the Lightning Network, and created new possibilities for Bitcoin-based applications.