Opinion
[1]While Taro could bring interesting developments to Bitcoin, the impacts on the bitcoin fee market and the scaling issues this will cause are unclear.
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While Taro could bring interesting developments to Bitcoin, the impacts on the bitcoin fee market and the scaling issues this will cause are unclear.
This is an opinion editorial by Evan Price, a software engineer of 15 years and advocate for privacy rights.
Taro is a new protocol being developed at Lightning Labs that promises to enable creation and transfer of digital assets on the Bitcoin blockchain and specifically on the Lightning Network. It is being hailed as a revolutionary advance in cryptocurrency tokenization. I am skeptical of any proposal aiming to transfer non-bitcoin tokens on the Bitcoin network, but Bitcoin is a permissionless network and if Taro fans are intent on building and deploying it no one can stop them. This is the magic of Bitcoin: it is a truly neutral arbiter. Bitcoin only enforces the protocol rules; it does not pass judgment on how those rules are used.
Taro's design[3] is very clever. It hides a data structure called a sparse Merkle sum tree inside of the Taproot scriptpath, which is itself a Merkle tree that lives inside every Taproot address. It's Merkle trees all the way down! However, I believe this design places a fundamental limitation on the scale that can be achieved with any asset issued using the Taro protocol. The crux of the problem is that every time a Taro asset is issued or transferred it must happen inside a Bitcoin transaction that will eventually be committed to the blockchain. Bitcoin's block space is intentionally limited in order to minimize the resources required to run a Bitcoin node.
