What’s the Next Chapter for Bitcoin? Potential Protocol Upgrades

The Bitcoin protocol has been chugging along for about 12 years. It has undergone quite a few upgrades to its code over that period that have introduced functionality and compatibility enhancements. Other minor bugs have also been constantly monitored and fixed by Bitcoin Core developers over the years. Since the code is open-source, any community member can propose changes that are implemented via network consensus. The voting mechanism helps ensure that the network participants are fully involved in approving upgrades that benefit the entire Bitcoin ecosystem. It also guarantees that no single individual can make decisions over alterations made to Bitcoin’s code.

Ever since the BTC blockchain launched in Jan 2009, its pseudonymous creator has fixed frequent bugs that users discover. However, in 2017, most network participants voted to implement a change to the Bitcoin code to amplify block capacity. Dubbed the “last civil war,” it activated the highly controversial Segregated Witness (SegWit) upgrade in August 2017. It leads to dissenting community members branching off to form a new network fork, Bitcoin Cash.

Since then, Bitcoin’s consensus layer has gone on for over three years without any significant consensus fork. However, that is about to change, with the network now expecting its first significant upgrade in a long time.

Read on to learn which Bitcoin updates have been rolled out recently and what ambitious protocol upgrades the robust network’s backers plan to implement shortly.

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The Newly Released Bitcoin Core 0.21.0.

On Jan 14, 2021, Bitcoin Core 0.21.0 was released, introducing new features and performance improvements to the Bitcoin Core software. The release marked the 21st and latest upgrade to the Bitcoin Core software that represented a massive step toward the imminent Schnorr/Taproot network upgrade.

Overseen by Wladimir van der Laan, a Bitcoin Core lead maintainer, the release introduced “descriptor wallets,” which are particularly useful to app dev teams who build software on top of Bitcoin Core. The recent release also introduced privacy-preserving compact client-side block filtering, allowing for fewer broadcast attempts from Bitcoin Core Nodes. Other improvements brought in by Bitcoin Core 0.21.0 include Tor V3 support, compact block filters, and several bug fixes.

Improvements on Bitcoin’s Lightning Network

The lightning Network, a layer above the Bitcoin blockchain that offers faster, more scalable payments and cheaper transactions, was first proposed by Thaddeus Dryja and Joseph Poon in 2015. Since its launch, developers have optimized the network to make bitcoin more useful for payments. 

Essentially, users can send a Lightning payment by depositing BTC at one address (the channel), via which they can exchange funds multiple times. These user-generated channels maintain the security of the BTC network while preventing small, regular payments from having to be repeatedly added to the underlying blockchain. The result is amplified transaction speed and throughput.

The Lightning Network, Bitcoin’s primary scaling solution, has had its fair share of security vulnerabilities since its inception. Still, its adoption seems to be finally gaining traction after several node upgrades over the past few months. Per a June 17 report by the Block, the network’s capacity recently surpassed 1,500 bitcoin, a 50% increase in six months. 

Since early 2021, the number of nodes on the network has also shot up to 21,567. Also, Lightning-enabled apps like Bitcoin Beach and Strike have dominated Google Play Store’s rankings. 

In a recent tweet, Jack Dorsey hinted that Twitter would soon integrate Bitcoin’s layer two payments protocol after praising the Lightning-powered messaging application Sphinx Chat. 

Taproot Soft Fork Approved By Miners

In a rare moment of consensus, Bitcoin miners recently agreed to implement the proposed Taproot upgrade. It is being hailed as the most innovative addition to the network’s base layer. In addition, the soft fork is expected to significantly improve Bitcoin’s scalability since the block size increase, implemented in 2017.

According to Taproot Watch, the proposed upgrade has now been “locked-in” after 1,815 out of 2,016 blocks signaled their support for the soft fork. The consensus is quite a significant achievement, as getting all network participants to agree on a particular change can be daunting. 

Taproot is essential because it is projected to significantly improve the scripting capabilities, privacy, and functionality of the Bitcoin network. It will also potentially broaden the network’s market, which could boost the prospects and valuation of bitcoin. 

One of the main benefits of the upcoming upgrade is increased privacy in terms of the types of transactions rather than BTC address anonymity on the public blockchain. Essentially, Taproot will make the most complex transactions’ on-chain footprint indistinguishable from simple transactions. As a result, it will also slash the data size of complex transactions, resulting in lower transaction fees. 

What’s more, Taproot will introduce Schnorr signatures, which will unlock smart contract functionality on the network. As such, it will open breadth of opportunities for entrepreneurs looking to expand Bitcoin’s utility. 

That said, the impact of the first major Bitcoin network upgrade in almost four years won’t be felt until Nov 2021 at the earliest. In the meantime, miners and node operators will need to upgrade their software to benefit from the upgrade fully. 

Taproot Upgrade to Boost the Lightning Network

The long-awaited Taproot upgrade will also have positive implications for the Lightning Network. The soft fork will make transactions on the Lightning Network more flexible, cheaper, and more private. 

According to Jimmy Song, a Bitcoin Core developer, Taproot will generate more interest for Lightning and integrate many more exciting features. For example, they will enable participants to secure the network. 

Researchers from the Block found that the crypto community is closely following Bitcoin’s imminent makeover because it expects the upgrade to make transactions cheaper and faster. Bitcoiners also predicts that the upcoming change will enable new features and greatly enhance existing features, such as the Lightning Network.

Conclusion 

High-profile Bitcoin developers are upbeat that the upcoming upgrades to the world’s first cryptocurrency are bullish as they will incorporate greater privacy and enhance the scalability of the ecosystem. In addition, Bitcoin’s protocol developments in the coming months will likely rejuvenate the blockchain’s prospects and attract more users to the ecosystem. 

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Other proposed improvements to the Bitcoin protocol, including The Great Consensus Cleanup and OP_CHECKTEMPLATEVERIFY, are in the pipeline and could help boost network throughput during peak hours.