Bitcoin Taproot upgrade explained
The Bitcoin Taproot upgrade is the most significant upgrade the cryptocurrency has seen since 2017, when Segregated Witness (SegWit) was activated. Like SegWit, the Taproot update aims to improve privacy and network efficiency, but on a larger scale and with a potentially more significant impact expected over the years. Bitcoin Taproot’s upgrade will also boost the implementation of smart contracts that can cut out intermediaries from transactions and open the door to decentralized finance (Defi) for the leading cryptocurrency. On June 12, 2021, Bitcoin miners signaled their support for the upgrade with a 90% consensus. However, Bitcoin Taproot’s upgrade date was not set until November 2021 and was fully activated as a soft fork of the protocol at block 709 632 on November 14, 2021.
The six months between suspension and activation were chosen to allow node operators and miners to fully upgrade to the latest Bitcoin Core version, 21.1, which includes the Taproot update. This article highlights the fundamental changes that the Taproot update will bring to the Bitcoin protocol and how it will benefit Bitcoin over the years.
Who developed Taproot Bitcoin?
Bitcoin Core developers have been looking for ways to expand SegWit’s capabilities since its implementation in 2017. One of the leading cryptocurrency developers, Greg Maxwell, first introduced the Taproot proposal in 2018. Pieter Wuille is the author of the three Bitcoin Improvement Proposals (BIPs). ) that Taproot coded. In 2020, developers Tim Ruffing, A.Townes and Jonas Nick joined the project and worked alongside Maxwell and Wuille to implement the update.
As a soft fork of Bitcoin, Taproot is backward compatible with the software. It does not need to be separated into two parallel blockchains and cryptocurrencies, as with Bitcoin Cash.
In 2017, SegWit became famous for its dramatic impact on cryptocurrency, leading to the fork in the network and the creation of Bitcoin Cash. This upgrade expanded Bitcoin’s block size without sacrificing important properties like decentralization. the other side advocated larger blocks without the implementation of SegWit. As there was no more extended consensus on the same protocol, the need to fork the Bitcoin blockchain arose and two different cryptocurrencies were created, Bitcoin (BTC) and Bitcoin Cash (BCH).
The Taproot upgrade is not as controversial as SegWit and is not a hard fork. It immediately had widespread support among miners, partly because it brought significant incremental improvements to the code. While miners have already extensively upgraded their systems to the latest version of Bitcoin software, other players such as exchanges, traders and regular node operators will gradually upgrade according to their priorities. Despite massive support across the board, Taproot’s adoption is expected to increase progressively over time, as with the SegWit update. The impact on Defi from intelligent contracts will also be felt over the years but is expected to be significant.
What is the Taproot, and how does it benefit Bitcoin?
Taproot’s ultimate goal is to make Bitcoin faster, more efficient, and more private. The update makes it possible to bundle multiple signatures and transactions, making transaction verification on the Bitcoin network quicker and easier.
Here’s how the Taproot benefits Bitcoin
Bitcoin’s standard process before Taproot involves verifying transactions individually by validating a digital signature with a public key, like a user’s fingerprints. The Taproot update allows adding and verifying multiple and complex signatures, such as B. Multi-signature wallets. Together instead of individually. The critical change that will enable this significant transition is the implementation of Schnorr signatures on top of the Elliptic Curve Digital Signature Algorithm (ECDSA). The ECDSA algorithm creates a signature from the private key controlling a bitcoin wallet and verifies that the rightful owner is making the transaction.
What the Bitcoin Taproot upgrade means for investors
Taproot is a technical update, and most users won’t even realize it happened. However, investors should pay attention to this event as the potential long-term impact for the leading cryptocurrency can be huge—the long-awaited solution to many of Bitcoin’s traditional problems. Resolving scalability has always been a priority for bitcoin developers, and Taproot provides the tools needed to make bitcoin faster and more efficient. The data size of complex transactions will decrease, leaving room for more entries on the blockchain to process.
The Taproot directly affects the profitability and functionality of the lighting network, which becomes more flexible for developers who want to develop it, cheaper, and more private for users.
This lays the technical foundation for accelerating Defi peer-to-peer financial services on the Bitcoin network. Expanding the utility of Bitcoin, Taproot presents a tremendous new opportunity for entrepreneurs who want to invest in the cryptocurrency’s potential with a long-term plan. By creating a more stable and efficient structure, Taproot should give investors more confidence in the cryptocurrency’s key fundamentals. As for the price, the impact of the Bitcoin Taproot upgrade over the years is yet to be seen. In the days leading up to the Taproot update, Bitcoin’s value saw a massive surge, culminating in an all-time high of $64,000 on November 12. December 2021. A series of events, including adopting Bitcoin as a legal tender in El Salvador and its viability as a hedge against inflation, caused the crypto currency’s price to surge.
However, analysts say that Taproot has also significantly boosted Bitcoin’s value as trust in the network continues to rise. However, it is difficult to predict how the update will affect the price of Bitcoin in the future. The fork is already priced in, and primarily network efficiency will benefit with no direct impact on short-term price movements, like Ethereum (ETH), Solana (SOL) or Cardano (ADA). Whether institutional and prominent players stick with existing platforms or migrate to Bitcoin, it will be an exciting challenge to watch over the coming years.