Could Taproot’s ‘Privacy’ Features Make BTC Illegal?

Written by:
Aaron Goldstein
Published on:

Core developers have branded BTC’s proposed “fix” as an “upgrade” to the Bitcoin protocol.  But Jon Southurst of CoinGeek claims that Taproot actually moves BTC even further away from the original 2009 Bitcoin protocol.

He ponders the question: “Privacy coins” have been delisted from most major (legitimate) digital asset exchanges. What would happen to BTC if it suddenly, and irreversibly, became a privacy coin itself? Could BTC even become illegal?

Mark R. Cale of Yahoo Business reports the main effect of Taproot will be to allow Bitcoin to more efficiently process smart contracts and permit more privacy in multi-signature blockchain transactions.

Not so fast, argues Kurt Wuchert, Jr., Chief Bitcoin Historian for Coingeek.  He suggests, while it is true Taproot and Schnorr Signatures will fundamentally change the handling of signatures and scripts to allow more flexibility in the types of transactions that can go across the arbitrarily rate-limited BTC network, there could be consequences.

Wuchert Jr. writes:

With near unanimous control of exchanges, publications, development teams, social media influencers and the forums of discussion, the small blockers and their VC backers were able to sell people the idea that fundamental changes to bitcoin (like Taproot) are not actually changes at all because they have been so heavily lubed up that honest nodes let them slip through no matter how many bitcoin rules are broken!

From P2SH, to Replace by Fee (RBF) and then Segwit, these are fundamental changes to the protocol, but they are done in such a way which makes it seem like no change has happened because passive node operators do not need to make any active changes to their endpoints.

In contrast to hard forking, which creates a split of the ledger, soft forking keeps the ledger together against the rules of Bitcoin by wrapping the consensus-breaking changes into a sort of digital envelope of code. The code tells honest nodes to ignore the fact that the transactions inside the envelope fundamentally break Bitcoin’s rules. Furthermore, the nodes are instructed to validate the envelope while ignoring anything that occurs within it. These changes used to be more contentious, but since development of BTC occurs in an echo-chamber, these sorts of underhanded changes are quite easy.

And that is the insidious nature of calling BTC “bitcoin” at all. The white paper is very clear about the purpose of nodes, how they achieve consensus, and exactly how and why the network could be split by violating Bitcoin rules. But leaving consensus up to honest nodes removes the power of the developer from the network, which is why we have seen so many years of social engineering to convince people of a new definition of a Bitcoin node, a Bitcoin rule and even a Bitcoin transaction.

Taproot and Schnorr Signatures new changes to BTC bring the network more in the direction of an anonymous money laundering tool, and little else.

Taproot was proposed in 2018 by Gregory Maxwell, a Bitcoin Core developer.

Journalist Jordan Atkins says Maxwell is "selling out Bitcoin for his own ends".

Atkins writes:

What is especially dangerous about people like Maxwell is that rather than celebrating competing offerings and having confidence that his own products and ideas will stand up to market scrutiny, they will attempt to manipulate the market itself in order to create conditions in which he can profit and those still connected to reality are censored. Maxwell, Blockstream and BTC don’t need to have any real utility in order to be profitable, so long as they can convince enough people that they do in fact have such utility.

- Aaron Goldstein,

Business/Financial News

UK Rejects Proposal to Regulate Crypto Like Gambling

"A system of gambling regulation, in isolation, would be unlikely to address these risk factors. It would also not be equipped to deal with insider dealing, market manipulation, predatory short selling and many other behaviours which can manifest themselves in both cryptoasset markets as well as traditional financial services markets."