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Why Bitcoin Needs the Taproot Upgrade, And What Will It Solve?
Bitcoin has been the premier cryptocurrency of the last decade. Nonetheless, cryptos have been gaining popularity, with their adoption achieving good traction along the way. However, it is vital to keep this technology up-to-date, and the answer lies in ecosystem upgrades. Similar to the ETH 2.0 upgrade, BTC is also receiving its first update in four years. The Taproot upgrade may be the key to transcending the Bitcoin blockchain into the smart contract era.
Read on to learn more about the Taproot upgrade and its expected effects on Bitcoin and the crypto market.
Why Upgrade Bitcoin?
Since technology is growing every day, it is necessary to keep tightening the security and functionality of digital projects to keep them up to date. This logic is what applies to the Taproot upgrade, among others that came before it.
Upgrading Bitcoin requires following a specific protocol, starting with the members of the Bitcoin network agreeing on the source code’s alteration. One of the members who hold a high rank in the Bitcoin Core proposes a change, later voted upon by the community of miners.
However, developers usually create their blockchain, known as a ‘hard fork,’ if they disagree with the voting outcome.’ The 2017 SegWit upgrade was a result of the same, leading to the founding of Bitcoin Cash.
The success of an upgrade entirely relies on the miners and the blockchain users as they are the main participants of blockchain. However, it is essential to note that these upgrades are targeted at changing the structure of the BTC network at a significant rate. Some of the enhancements that have been done on the Bitcoin network include:
Bitcoin XT in 2014
It was the first significant bitcoin fork proposed in 2014 by Mike Hearn and Gavin Andresen; the duo worked as senior bitcoin developers. They offered to speed up BTC transactions from 7 to 24 transactions per second by increasing the block size from 1MB to 8 MB. However, the proposal lacked enough traction and was discarded.
SegWit in 2017
The Segregated Witness Consensus layer (SegWit) upgrade was proposed by Pieter Wuille, a bitcoin programmer, in 2015. This upgrade would separate transaction signatures from optimizing Bitcoin transactions. SegWit segregated each transaction into two sections, increasing the number of transactions per block. The eventual outcome would be that the capacity of the entire network would increase.
However, this proposal did not receive a warm welcome from all developers. The Bitcoin civil war arose, birthing the Bitcoin Cash token. The difference between Bitcoin and Bitcoin Cash is that the latter’s block size was increased from 1MB to 8MB, later rising to 32 MB in 2018.
An expected upgrade for 2021(Taproot)
Earlier this year, Pieter Wuille announced the inevitable Taproot upgrade on Twitter, adding that the upgrade might roll out in mid-November.
What is the Taproot Upgrade, And Why is it Necessary?
In January of 2018, Greg Maxwell, a core bitcoin developer, tabled the taproot upgrade proposal. By June 21, 2021, the Speedy Trial process met the 90% threshold of blocks mined with an encoded support signal.
Taproot aims to improve the privacy of multi-signature transactions, unlocking the possibility of smart contracts on BTC. It will also reduce transaction costs on the Lightning Network. Many enthusiasts believe that this step might be the key to unleashing it into mainstream finance.
The miners will have up to November to install the Bitcoin Core 0.21.1 upgrade on their node. After that, the Taproot upgrade will automatically roll out when the bitcoin network reaches a predetermined ‘block height’ of 709,632 in mid-November.
How Will Taproot Upgrade Impact Bitcoin Structure?
One of the Bitcoin Network’s main changes is replacing the current elliptic curve digital signature algorithm (ECDSA) with the Schorr signatures. The current algorithm derives public keys from the generated private keys. It also makes it impossible to determine a private key from a bitcoin address.
However, its limitations come in multisignature transactions, whereby malicious actors can flag a multisig transaction. Taproot may have a solution for this stress point to increase user safety.
The incoming Schnorr signature can combine the multisig transactions and their corresponding keys into one key to distinguish it from the regular monosig transactions. The schnorr upgrade away from security upgrades will make the transactions faster, free up more space and Bitcoin’s bandwidth.
The schnorr upgrade will also allow hosting smart contracts on the BTC blockchain by enabling Discrete Log Contracts(DLCs). Moreover, it also can help scale the layer 2 payment channels allowing instant and reliable transactions on Bitcoin.
What Impact Will Taproot Upgrade Have on Bitcoin And the Crypto Market?
The movement of crypto users depends on the practical use of the given crypto. Therefore, significant effects should appear with the significant improvements in security, smart contracts, speed, and reliability on BTC, including:
- An individual’s transactions will be similar to a group’s transaction signatures on the network, thus making it more secure.
- BTC will be open to hosting smart contracts that may cause massive attention drawn towards it.
- The upgrade will reduce the time and space taken to complete transactions on the network.
- The Bitcoin network will start experiencing a revolution in its transaction processes since it will not rely on P2P interactions only.
The crypto market will also be subject to some impacts such as:
- Since developers made all other cryptos compared to BTC, they may follow in its steps and roll out similar upgrades to see crypto adoption rates rising.
- Since many states are creating CBDCs, the Bitcoin smart contracts feature will prompt them to choose it over the altcoins; the demand for BTC and other cryptos will rise.
- Many people will regain faith in cryptos once they learn how much effort goes into maintaining their security. And, this should lead to mainstream adoption.
It is crucial to keep learning new things about blockchain technology every day. Since blockchain is snowballing, every enthusiast needs to tune in to news about its developments and market trends.
To start with, it is not the first time that BTC has received a significant upgrade. In 2017, the prices of BTC skyrocketed and have maintained the high value ever since. This can presumably receive credit for the SegWit update of that year. The SegWit upgrade is just the tip of the iceberg when compared to the incoming Taproot upgrade.
Therefore, the effects of the Taproot upgrade, whether passive or active, may be significant to BTC’s growth. Consequently, it is a wise choice to buy Bitcoin right now or increase your stash.