Taproot Upgrade

Another upgrade in 2021, called Taproot or SegWit v1, enabled numerous enhancements to witness data usage.

This soft fork upgrade encompassed three distinct Bitcoin Improvement Proposals (BIPs): BIP 340, BIP 341, and BIP 342, and aimed to enhance privacy, scalability, and composability within the Bitcoin blockchain.

One of the most significant impacts of Taproot was the introduction of advanced scripting capabilities in the Witness section of a block.

Taproot removed the data limits between the two sections of a block, effectively enabling up to 4MB of data to be stored in the Witness section. This change further increased Bitcoin's scalability by allowing more transactions to be included in each block, improving the network's overall transaction throughput.

By combining advanced scripting capabilities with increased data capacity in the Witness section, Taproot paved the way for greater privacy, scalability, and functionality within the Bitcoin ecosystem, while maintaining backward compatibility with existing Bitcoin nodes and wallets.

This block section increase enabled a technique dubbed "inscriptions," allowing arbitrary data storage within a transaction's witness section. Though ignored by Bitcoin itself, this arbitrary data can be extracted and parsed by inscription-aware software, allowing for the storage of images and rich media on the blockchain.