May2025 - TAPROOT ASSETS TOKENIZATION ON BTC | How Bitcoin/Lightning Network natively support Tokenization

Overview

Taproot Assets, built on the Taproot Assets Protocol (TAP), allow for the issuance and transfer of both fungible and non-fungible tokens on the Bitcoin blockchain. This protocol leverages the Taproot upgrade to enhance privacy and efficiency, particularly when integrated with the Lightning Network for fast, low-cost transactions. Below, we explore how these assets work, their privacy features, and additional functionalities like the Taproot Asset Universe and pocket universe.\

Taproot Assets represent a significant advancement in Bitcoin’s ecosystem, enabling the issuance and transfer of digital assets through the Taproot Assets Protocol (TAP).

Taproot Assets and the Taproot Upgrade

Taproot Assets are digital assets issued on Bitcoin, ranging from stablecoins to NFTs, using TAP. The protocol derives its name and functionality from the Taproot upgrade, implemented in November 2021, which allows embedding asset metadata into an existing Unspent Transaction Output (UTXO). This enhances scalability and privacy by using Schnorr signatures.

Privacy and Lightning Network Integration

When transferring Taproot Assets, the process is designed to be private, with only the participants of a Lightning channel aware of the transfer. To routing nodes, these transfers appear as regular Lightning payments, ensuring privacy. If a direct route in the desired asset isn’t available, the asset is converted to BTC, routed, and swapped back at the destination, with routing fees paid to Lightning Network nodes.

Additional Features

The Taproot Asset Universe serves as a repository for asset details, proofs, and transfer records, managed by a universe operator who sets data release criteria. Additionally, TAP includes a pocket universe feature, allowing users to batch transactions and share on-chain fees, controlling the Taproot key to a UTXO but not the asset keys within it.