NEW YORK – Bitcoin went through a major upgrade on Sunday (November 14th) that allows its blockchain to conduct more complex transactions, potentially expanding virtual currency use cases and making it slightly more competitive with Ethereum in processing smart contracts.
Smart contracts are self-executing transactions, the results of which depend on preprogrammed inputs.
The extension called Taproot is the most significant change to the Bitcoin protocol since the change in the block capacity of SegWit (Segregated Witness).
Noelle Acheson, Head of Market Insights at Genesis, a prime digital currency broker, said the potential uses of Bitcoin have broadened with Taproot.
“More flexible types of transactions and lower costs are likely to aid further development of DeFi (decentralized finance) and NFTs (non-fungible tokens) on Bitcoin and could lay the groundwork for a wave of technological advancement in the original crypto network,” she added.
The run-up to the activation of Taproot partially triggered a rally in Bitcoin, propelling it to an all-time high of $ 69,000 on November 10th. In the past two months, Bitcoin is up about 47 percent.
What is taproot
The Taproot upgrade consists of three separate upgrade proposals. At its core, however, the upgrade introduces a new digital signature scheme called Schnorr, which helps Bitcoin transactions become more efficient and private. Schnorr can also be used to enable Bitcoin users to execute more complex smart contracts.
When was Taproot officially activated?
Taproot was officially activated on Sunday on block 709,632. Blockchains handle transactions in batches or blocks. Each block can only contain a certain number of transactions.
Discussions about this particular upgrade started back in 2016, market participants said. The Taproot upgrade has been included in the Bitcoin software since September.
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How does it affect Bitcoin?
The biggest impact would be the Bitcoin network’s ability to process more smart contracts, similar to Ethereum.
Katherine Dowling, general counsel & chief compliance officer at digital asset investment firm Bitwise, said Bitcoin has been much more restricted in processing smart contracts in the past compared to Ethereum.
“But while Bitcoin will probably never be as flexible as Ethereum from a smart contract point of view, Taproot will now narrow this gap. And that means we will likely see an increase in daily uses for Bitcoin. “She added.
What other improvements are there?
Taproot increases privacy by obscuring what type of transaction is being carried out. The Schnorr signatures can carry out more complex transactions on the Bitcoin protocol, e.g. B. Wallets that require multiple signatures look like any other transaction. This makes transactions more private and more secure.
Bitcoin transactions are also becoming more data efficient, optimizing block capacity and leading to lower transaction fees, Genesis Acheson said.
What does Taproot mean for investors?
Bitwise’s Dowling said these large-scale upgrades paved the way for the next phase of innovation on the Bitcoin network. She noted that the last major upgrade in 2017 helped launch the Lightning Network, which enabled much faster and cheaper Bitcoin payments than before.
She expects Taproot to lead to a similar wave of innovation in Bitcoin, centered around smart contracts.
