Bitcoin’s most significant upgrade in four years just happened – here’s what changes
- Taproot, the first Bitcoin update in 4 years, has now been enabled.
- The Taproot upgrade improves the security and speed of financial dealings by enabling the usage of smart contracts, which those who may use to do away with intermediaries.
Bitcoin has just received its first major update in four years. This moment of agreement among key players is monumental for the world’s most widely used digital currency.
The Taproot upgrade improves the security and speed of financial dealings by enabling the usage of smart contracts, which may use to do away with intermediaries.
According to Alyse Killeen, founder and managing partner of Stillmark, a venture capital company focusing on bitcoin, “Taproot significant because it creates a breadth of opportunity for entrepreneurs interested in growing bitcoin’s usefulness.”
Unlike Bitcoin’s 2017 upgrade, which has been called the “final civil war” because of the divisive ideological gap between supporters, Taproot enjoys almost unanimous support, partly because these modifications entail relatively modest enhancements to the code.
Digital signatures, essentially the fingerprint a person leaves on every transaction, are a significant component of bitcoin’s makeover.
Currently, bitcoin utilizes an algorithm known as the “Elliptic Curve Digital Signature Algorithm” to verify the identity of the wallet’s owner using the private key associated with that wallet.
According to bitcoin miner Alejandro De La Torre, Schnorr signatures, implemented in Taproot, would render multi-signature transactions illegible.
Your bitcoin address on the public blockchain won’t be any more concealed, but even multi-signature transactions will be indistinguishable from those with a single signature.
Because your keys won’t be dangling as low on the chain, this increases your privacy. Bitcoin mining engineer turned entrepreneur Brandon Arvanaghi said, “You can sort of mask who you are a little bit better, which is excellent.” His startup, Meow, allows corporate treasuries to participate in crypto markets.
Smart contracts, agreements that can execute themselves and exist on the blockchain, will benefit significantly from these improved signatures, who might use smart contracts for everything from monthly rent payments to automobile registration.
With Taproot, smart contracts are less expensive and take up less space on the blockchain. In light of this increased utility and efficiency, Killeen sees “mind blowing possibilities.”
The Lightning Network is a payment network based on Bitcoin that allows fast payments and smart contracts. Execution of smart contracts on the Lightning Network often results in cheaper and quicker financial dealings.
Killeen said, “Lightning transactions may cost fractions of a dime,” whereas a bitcoin transaction at the core protocol layer can be far more expensive.
In preparation for the update, which will enable granular contracts, developers have begun work on Lightning.
Fred Thiel, CEO of cryptocurrency mining firm Marathon Digital Holdings, has remarked that “the most essential thing for Taproot is…smart contracts.” It’s already the leading force behind new developments on the Ethereum network. With smart contracts, you may create legitimate blockchain-based services and enterprises.
Decentralized finance (DeFi) refers to financial applications that aim to eliminate the need for a central authority or mediator. As more developers construct smart contracts on top of bitcoin’s blockchain, bitcoin may become more of a participant in this space.
These programs, also known as “dApps,” are built on blockchain technology, with Ethereum currently being the most popular option.
Why the wait
Though they agreed on the update in June within the Bitcoin community, the deployment occurred in November. Who included the extra few months to allow for testing and minimize the possibility of issues during the upgrade?
An analyst at Quantum Economics, Jason Deane, stated, “Upgrades enable the (very) distant potential of a flaw entering the system, which would erode faith in the entire cryptocurrency system, essentially wiping it out – a self-inflicted wound,’ if you prefer.
For this reason, Deane argues, upgrades undergo extensive testing and vetting over extended periods.
Bitcoin’s unfortunate migration in 2013, when an upgrade went awry, is still fresh in the minds of many in the community.
It would help if you kept all clients and miners in sync. Nic Carter, a founding partner at Castle Island Ventures, told CNBC that this is how disasters occur. To paraphrase, “We have these really extensive lead periods so that we don’t have to repeat 2013.”
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