The Internet Computer is taking another leap in its Bitcoin integration, now offering full Taproot support. This upgrade introduces key-tweaking functionality, allowing developers to build more dynamic smart contracts that interact smoothly with Bitcoin metaprotocols. The shift enhances cross-chain interoperability, with the Deuterium milestone enabling canisters to generate threshold Schnorr signatures, including those used in Bitcoin’s BIP340 standard. By adding Pay-To-Taproot (P2TR) address generation and transaction initiation, the Internet Computer is making its smart contract capabilities even more versatile.
At the core of this update is the ability to use P2TR addresses, as defined in BIP341. These addresses allow transactions to be validated in two distinct ways: through a key path or a script path. The key path verifies a Schnorr signature against a public key in the P2TR address. The script path, on the other hand, allows for spending via predefined Bitcoin script conditions, which can remain hidden until used. If both options exist in an address, spending via the key path can obscure the presence of any script path, bolstering transaction privacy and security.
Initially, canisters on the Internet Computer faced constraints when working with P2TR addresses. They could only create addresses supporting either the key path or the script path, not both. This limitation reduced the flexibility of smart contracts, requiring developers to make early decisions about how transactions would be handled.
The solution lies in key tweaking for threshold Schnorr signatures. In a traditional setup, creating a P2TR signature involves tweaking the internal public key by hashing it alongside the Merkle root of alternative scripts, then adding the tweak to both the private and public keys. However, in a threshold Schnorr setting, where the private key is split across multiple nodes, this process becomes complex. Each node must apply the tweak individually before collaboratively generating a valid signature.
When the Deuterium milestone was initially released, the Internet Computer did not support key tweaking for threshold Schnorr signatures. As a result, canisters could not generate P2TR addresses that allowed spending via both key and script paths. This restriction forced developers to choose a single spending method at address creation, limiting the adaptability of smart contracts.
With key tweaking now integrated into the Schnorr signing API, canisters can create Taproot addresses that support both spending mechanisms. The Internet Computer aligns more closely with standard Bitcoin functionality, simplifying the development process for Dapp creators. This update expands the range of possibilities for Bitcoin-based smart contracts, improving their flexibility and interoperability.
The new key-tweaking feature is incorporated as an auxiliary argument in the existing sign_with_schnorr API. Developers can now include the Merkle root of the script path in their signature requests, enabling full Taproot functionality. The API’s sign_with_schnorr_args now includes an optional field for auxiliary data, starting with a BIP341 variant for the Merkle script root. Future expansions could introduce additional enhancements, ensuring ongoing adaptability for Bitcoin smart contracts.
This advancement unlocks a broader scope of Bitcoin metaprotocol interactions for canisters on the Internet Computer. Projects leveraging protocols like Ordinals, BRC-20, Runes, and Atomicals can now operate more seamlessly within the ecosystem. Developers eager to explore these new capabilities can refer to the Internet Computer specification, Chain Fusion documentation, BIP341 details, and the Internet Computer’s example repository, which provides guidance on Taproot transaction handling.
With this latest enhancement, the Internet Computer continues to refine its cross-chain functionality, bringing greater flexibility, security, and efficiency to Bitcoin-integrated smart contracts. As the ecosystem evolves, these improvements pave the way for more sophisticated and adaptable decentralised applications.
