The Bitcoin upgrade for the first time in four years has just been approved by miners around the world. It’s a rare moment of consensus among stakeholders, and crypto experts tell CNBC that it’s a pretty big deal for the world’s most popular cryptocurrencies.
The upgrade is called Taproot and will take effect in November. Doing so will improve transaction privacy and efficiency. And decisively, the possibilities of smart contracts are unleashed. This is an important feature of blockchain technology that eliminates intermediaries from even the most complex transactions.
“Taproot is important because it offers a wide range of opportunities for entrepreneurs interested in expanding the usefulness of Bitcoin,” said Alyse Killeen, founder and managing partner of Bitcoin-focused venture company Stillmark. Says.
Unlike Bitcoin’s 2017 upgrade (called the “last civil war” because of the controversial ideological division that separates its supporters), Taproot has almost universal support. This is because these changes are fairly gradual improvements to the code.
Bitcoin makeover has to do with digital signatures. Digital signatures can be thought of as fingerprints left in every transaction performed by an individual.
Currently, cryptocurrencies use what is called an “elliptic curve digital signature algorithm”. It is created from a private key that controls the Bitcoin wallet and makes Bitcoin available only to legitimate owners. According to Alejandro De La Torre, vice president of Hong Kong-based major mining pool Poolin, Taproot will switch to what is called a Schnorr signature. This makes multi-signature transactions essentially unreadable.
In reality, it means that privacy is improved because the keys are less exposed on the chain. “You can hide someone who is a little better at you, that’s a good thing,” said Brandon Alvanagi, a former security engineer at the crypto exchange Gemini.
While it does not increase the anonymity of individual Bitcoin addresses on the public blockchain, simple transactions are indistinguishable from more complex, multi-signature transactions.
These enhanced signatures are also game changers for smart contracts, which are self-contained contracts that exist on the blockchain. In theory, smart contracts can be used for virtually any type of transaction, from monthly rent payments to vehicle registration.
Taproot makes smart contracts cheaper and smaller in terms of the space they occupy on the blockchain. Killeen says this enhanced functionality and efficiency offers “amazing potential.”
Today, smart contracts can be created both at Bitcoin’s core protocol layer and at Lightning Network, a payment platform built on Bitcoin. This allows for instant transactions. Smart contracts running on Lightning Network usually lead to faster, lower cost transactions.
“Lightning transactions can be a fraction of a penny, but Bitcoin transactions at the core protocol layer can be much more expensive,” explains Killeen.
Developers have already started building on Lightning in anticipation of upgrades that will allow for very specific contracts.
“The most important thing for Taproot is … smart contracts,” said Fred Thiel, CEO of Marathon Digital Holdings, a cryptocurrency mining specialist. “This is already a major driver of Ethereum network innovation. Smart contracts basically provide the opportunity to actually build applications and businesses on the blockchain.”
As more programmers build smart contracts on top of Bitcoin’s blockchain, Bitcoin’s decentralized finance is used to describe DeFi, a financial application designed to eliminate intermediaries. It has the potential to become more players in the world.
Today, Ethereum is dominated as the best blockchain for these apps, also known as “dapps”.
The Bitcoin community has agreed to the upgrade, but the rollout itself will probably not take place until November. Doing a lot of testing in advance can reduce the chance of problems during the upgrade.
“The upgrade makes the system much less likely to get bugs, loses the trust of the entire cryptocurrency system and effectively wipes it out. If necessary,” self-harm “occurs. “I will,” said analyst Jason Dean. Quantum economics.
Dean says this is why it is carefully tested, retested, and scrutinized over and over again over a very long period of time before the upgrade process is deployed.
Many people remember the disastrous transition of 2013, when the upgrade was unsuccessful and Bitcoin was temporarily split in half.
“We don’t want different clients and miners in the protocol to be out of sync, that’s how catastrophic things can happen,” Nick Carter, founding partner of Castle Island Ventures, told CNBC. “We have these very long lead times because we don’t want to repeat 2013.”
Bitcoin Taproot Upgrade: What Does It Mean
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