Interpretation of Taproot Assets: Interacting with Multiple Assets to Maximize On-Chain Efficiency

Taproot Assets is a Bitcoin-based scalable protocol that issues arbitrary assets by adding custom output scripts to transactions.

Written by: 0XNATALIE

Preface

The popularity of BTC NFT and BRC-20 has caused network congestion and high transaction fees on the Bitcoin blockchain, which is one of the reasons why some community members oppose such agreements. Taproot Assets v0.2, announced by Bitcoin Lightning Network infrastructure developer Lightning Labs on May 16, can alleviate this problem to some extent. Taproot Assets (formerly known as Taro) is a scalable Bitcoin-based protocol designed to efficiently handle the issuance and transfer of arbitrary assets (not just Bitcoin) on the Bitcoin blockchain.

Taproot, Taproot Assets and the Lightning Network

Taproot Assets is often mentioned together with Taproot and Lightning Network. What is the relationship between them?

Taproot is a soft fork upgrade of the Bitcoin protocol in 2021. It hides complex multi-signature transactions in a single transaction signature by introducing a new transaction signature scheme. All multi-signature transactions look like they originated from a single-signed transaction, increasing privacy, saving blockchain space and reducing transaction fees. In addition, the "Tap" scripting language introduced by Taproot enables more conditions and logic to be used in Bitcoin transactions, enabling a more flexible and scalable transaction scripting system.

Based on Taproot technology, Taproot Asset can achieve privacy and maximize chain efficiency on the Bitcoin blockchain to issue and interact with assets. Taproot Assets can be seen as a tool provided by developers, allowing developers to issue and transfer various types of assets on the Bitcoin blockchain, expanding the functionality and usage of the Bitcoin blockchain.

The ultimate goal of Taproot Assets is to make the Lightning Network a multi-asset network. The Lightning Network is a Layer 2 built on top of the Bitcoin blockchain. Lightning network participants can establish a payment channel with each other, conduct multiple transactions in the channel, and finally only need to submit the final transaction result to the chain. Through payment channels, the Lightning Network enables instant, high-volume, low-fee transactions. Currently, Taproot Assets is developing an integration with the Lightning Network to provide Lightning Network users with more asset choices.

Taproot Assets Technical Principles

The three key technologies of Taproot Assets: Taproot, Merkle Sum Sparse Merkle Trees (MS-SMTs) and Bitcoin are used to maximize chain efficiency, manage account status and verify transactions, and realize asset issuance interaction.

Taproot: Taproot Assets uses Taproot technology to build scripts. As mentioned above, with Taproot, Taproot Assets can encode multiple asset transfer operations into a single script, reducing transaction complexity and storage space consumption. At the same time, it brings a flexible script version system to Taproot Assets to extend functions and provide more programming capabilities.

Merkle Sum Sparse Merkle Trees (MS-SMTs): Taproot Assets uses MS-SMTs data structures to manage ownership and transfer history of assets. MS-SMTs is a combination of Sparse Merkle Trees (Sparse Merkle Trees) and Merkle Sum Trees ((Merkle Sum Trees)), each of its leaf nodes represents a specific asset and contains the asset-related hash Hash value, the hash value of all leaf nodes is calculated according to specific rules to obtain the root hash. Verify the validity of the transaction and the correctness of the account status by verifying the Taproot script in the transaction and the root hash of MS-SMTs.

Bitcoin: Taproot Assets utilizes Bitcoin's scripting programming language Bitcoin to define the rules and conditions for asset transfers. The transfer and management of assets can be achieved by embedding specific Taproot Assets scripts in Bitcoin transactions.

Taproot Assets Advantages

Taproot Assets is more efficient than other Bitcoin protocols. Taproot Assets uses custom scripts to output issued assets. Compared with the method of directly writing asset metadata into the block space (such as Ordinals) to issue assets, it can more effectively utilize the blockchain space of Bitcoin, avoid high transaction fees, and scale Handle any asset issuance and transfer in an efficient and private manner. The design philosophy of the Taproot Assets protocol is to move operations off-chain as much as possible, allowing an unlimited number of assets to be issued and transferred in a single on-chain transaction. This off-chain-first design enables asset issuers and traders to enjoy the permissionless nature of the Bitcoin blockchain and scale their businesses without the limitations of Bitcoin’s scalability.

Taproot Assets inherits the existing Taproot virtual machine, uses an address format familiar to Bitcoin users, and utilizes an easy-to-understand framework. In addition, Taproot Assets is light-client friendly, and assets issued using the protocol will be more accessible to people around the world, without requiring developers to run full nodes and maintain multi-gigabyte indexes to track additional assets.

Taproot Assets v0.2

Taproot Assets v0.2 is the latest version of Taproot Assets. Taproot Assets v0.2 ships with the following development tools:

1. Partially Signed Bitcoin Transactions (PSBT): PSBT is a community standard that defines how developers can make it easy for users to construct, sign, and verify Bitcoin transactions. Taproot Assets v0.2 supports the use of PSBTs, this support also extends to pure off-chain Taproot Assets transactions, called virtual partially signed Bitcoin transactions (vPSBTs), which allow multiple parties to co-construct and edit without fully signing trade.

2. Taproot Assets UniversesAPI: A universe refers to a set of servers that contain historical data and verification information for a specific asset. These servers act as issuers of assets and store data related to asset issuance, transactions and verification, allowing users to download and verify. Developers can use the Universes API to build tools such as the Taproot Assets block browser to help users easily discover and verify Taproot Assets.

3. Multi-asset minting to improve on-chain efficiency: Taproot Assets v0.2 supports operations involving multiple assets (minting, sending, and receiving) in a single on-chain transaction. The issuance, sending, and receiving of multiple assets can be performed in a single transaction, rather than creating separate transaction records for each asset transfer. This increases the efficiency of the Bitcoin network, reducing on-chain congestion and fees.

The updated features of Taproot Assets v0.2 improve on-chain efficiency and user experience, opening up a wider range of possibilities for the development of the Bitcoin blockchain. The enthusiasm for the Bitcoin ecosystem continues, and we look forward to the integration of Taproot Assets and the Lightning Network. Perhaps the explosion of the BTC DeFi ecosystem will come soon.

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