The Next BIG Thing in Bitcoin Network: Schnorr Signatures
With the activation of SegWit in the Bitcoin protocol, the developers can finally start to implement new updates into the BTC blockchain. One of them is Schnorr Signatures. It sounds like a very complicated thing but the basic idea is very simple and I will try to explain it in few paragraphs :)
What Are Signatures
In simple words - signatures are the mathematical proof that the Bitcoins you sent were indeed yours - that they are coming from your Bitcoin account and that you're not sending coins that belong to someone else.
In you think about Bitcoin transaction as a bank check - the signature is exactly the same thing in both cases. But in Bitcoin world signatures take precious storage space in the block - space that could be otherwise used to contain more transactions.
This is especially a problem when you're sending many checks - many transactions from different accounts (Bitcoin addresses) into a different, single account. Even though for the user this is a single transaction, it has to contain all signatures from all the user's Bitcoin addresses.
How Can Schnorr Signatures Help
Schnorr Signatures solve this problem so even if the user sends BTC from many BTC addresses that he owns - he needs only one signature in the BTC block. In other words all his checks are signed by one signature and this helps to save a lot of space that can be used to store more transactions.
This is best demonstrated by this illustrations:
According to the developers this reduces the storage and bandwidth usage by at least 25%.
Bitcoin Core developer Eric Lombrozo suggest that Schnorr signatures could eventually increase total capacity 40 percent or more
Answer To The Spam
There's a case where Schnorr Signatures are extremely helpful - transactions Spam.
Without going into politics - many believe that Bitcoin miners spam the blockchain with many transactions in order to increase fees for normal users and to push their agenda for larger Bitcoin blocks.
This was especially visible during the New York agreement process - before this happened, the Bitcoin Network was highly congested with many unconfirmed transactions. According to miners, who signed the NYA, this was a proof that larger blocks are indeed necessary. Interestingly, after NYA was signed, the BTC network congestion drastically fell.
What a coincidence :)
And this is how the Spam looked like in the Bitcoin blockchain:
Many inputs, one output. This is a pretty neat definition of Spam, both the one to eat and in the Bitcoin world :)
Transaction like this needed many signatures and took a lot of space in Bitcoin block - and still this is only one transaction!
You can probably already figure out that this transaction, using Schnorr Signatures would require only one signature and would save a ton of space that can be used for other transactions.
At this moment we don't know exactly when Schnorr Signatures will be mass adopted but probably not in the very near future. First we need all the major Bitcoin wallets and exchanges to use SegWit - than we can do further upgrades. And Schnorr Signatures are not the only one!
Sources:
https://medium.com/@SDWouters/why-schnorr-signatures-will-help-solve-2-of-bitcoins-biggest-problems-today-9b7718e7861c
https://bitcoinmagazine.com/articles/the-power-of-schnorr-the-signature-algorithm-to-increase-bitcoin-s-scale-and-privacy-1460642496