Bitcoin will go through a major network upgrade, Taproot, in almost two days, which, according to data from Taproot.watch, will take place on November 14th or 255 blocks later. This is the first major upgrade since Segregated Witness (SegWit), which finally culminated in the development and launch of the Lightning Network in 2018 on January 23, 2018.
While the previous SegWit upgrade aimed to improve transaction flexibility and improve the scalability of the Bitcoin network, the Taproot upgrade aims to improve transaction efficiency, network privacy and more, and the ability to support smart contract initiatives. The upgrade only started after the 12th. Sjöberg also created the Taproot.watch website to track updates to the Taproot upgrade.
Ben Caselin, Head of Research and Strategy at AAX, a cryptocurrency exchange, told Cointelegraph, “The Taproot upgrade to Bitcoin is one of the most influential changes in the blockchain network. The upgrade adds intelligent contract functions to the protocol and optimizes cost efficiency and data protection. “
He also noted that the smart contract functionality coming to Bitcoin is vital despite the abundance of high performance protocols in action, saying that “we need to remember that Bitcoin is the only truly non-sovereign network”. Planet. ”
MAST and Schnorr signatures
The soft fork introduces the Merkelized Abstract Syntax Tree (MAST). This tree introduces a condition that enables the sender and recipient of the transaction to jointly sign the transaction for settlement. A Merkle tree is an established compact complex data structure that was invented by Ralph Merkle, one of the inventors of public key cryptography.
Bitcoin currently uses Pay-for-Script (P2SH) hashing to ensure that only one script hash occurs in the chain.
Therefore, when using tokens, due to the underlying technology, it is necessary to show all possible conditions that could have been met, including those that were not met in the transaction. The downside of this is that it’s data-intensive, unnecessary, and not ideal for privacy as anyone on the blockchain can examine how the money was spent, the type of wallet used, and possibly more of those details.
MAST ensures that the various conditions under which the amount can be spent are individually hashed and added to the Merkle tree to create a Merkle root, which is a unique hash. This ensures that only the fulfilled conditions have to be disclosed, which makes the network more data efficient than previously used P2SH contracts.
In addition, the upgrade from Taproot leads to Schnorr signatures. This algorithm allows users to combine multiple letterforms into one for a single transaction, making it difficult to distinguish between regular transactions and multi-picture transactions. These signatures are essentially hidden if at any point a MAST structure consists of the token or the transaction.
Igneus Terrence, Head of Communications at Bybit, a crypto derivatives exchange, spoke to Cointelegraph about the specifics of this upgrade:
“With a trio of Schnorr, MAST and Tapscript signatures, Taproot enables less unnecessary data to be collected in the transaction output of the Bitcoin network without compromising security. Thanks to the smaller amount of data that is collected and transmitted, the benefits for end users are seen in better privacy, greater efficiency and lower transaction fees. ”
Terrence also mentioned that the Taproot upgrade will have a dual impact on the Lightning Network, which will launch in 2018. According to this soft fork, simple, complex Lightning Network and multisig transactions in the network are treated equally. This will unleash the true potential of the Lightning Network through increased efficiency and reduced surrogacy discrimination.
Marie Tatibouet, Chief Marketing Officer at Gate.io, spoke to Cointelegraph about the bigger impact of the Lightning Network, particularly with El Salvador’s adoption of Bitcoin as legal tender. She said, “Strike – one of the most popular Lightning Network wallets – is responsible for powering El Salvador’s crypto ecosystem. In the three-month period from May to July 2021, the number of lightning network nodes rose from 10,000 to 23,000. It is currently forecast that the Lightning Network could reach 700 million users by 2030. “
While the upgrade will enable the implementation of smart contracts and is the next logical upgrade for the Bitcoin network, it would be impractical to compete with the most widely used smart contract blockchain network, Ethereum, at all times. Regarding this, Tatibouet said, “Although it will take some time for the niche contracts to work properly, the benefits and user base they bring will certainly be impressive. However, don’t expect Bitcoin’s smart contract ecosystem to overshadow Ethereum anytime soon. “
Anto Bukov, the co-founder of 1inch Network, a decentralized cryptocurrency exchange, has a more absolutistic view of smart contracts. He told Cointelegraph, “It was not designed for that purpose. Bitcoin is based on the UTXO model, which is not suitable for smart contracts. Cardano recently proved this. “
Limited short-term price effect
The days before the upgrade were also interesting for Bitcoin as an asset. The token briefly hit an all-time high of $ 69,000 on November 12, before falling nearly $ 7,000 below the $ 63,000 mark. The token is currently trading at just under $ 64,000, according to CoinMarketCap. The asset now has a market capitalization of over $ 1.2 trillion and has now been above the coveted $ 1 trillion mark for nearly a week.
However, the effects of this upgrade may already be factored into the current price of the property. Bukov goes on to talk about the impact on end users. He said, “We’re seeing interesting technical improvements in Taproot, but it will have little impact on users except for marketing.”
Caselin appears more hopeful about the long-term price impact of this asset. He mentioned, “The soft fork was immediately appreciated. Everyone who understands and tracks Bitcoin already knows Taproot and will adjust the visibility accordingly. However, with Bitcoin remaining below its fair value and expected to continue rising this month, Taproot could provide momentum. In terms of potential, however, Taproot is undervalued at all. “
Since the Taproot upgrade reduces the transaction results in the network, it opens up the possibility of implementing complex smart contracts. One difference from other blockchain networks that already have advanced smart contract utilities like Ethereum, Solana, etc., is that bitcoins’ superior network security and monetary functions can attract long-term liquidity on the network. This is an aspect that various decentralized finance (DeFi) protocols based on platforms like Ethereum are currently struggling and are stepping into DeFi 2.0 to address them.
Caselin added on the market-wide impact, “Bitcoin could take some market share away from smart contract platforms; However, DeFi’s mainstream participants are more likely to stick with Ethereum, Solana, and similar protocols. Bitcoin is better suited for more serious ventures – and serious capital. ”
Regardless of the short-term price impact the Taproot upgrade to Bitcoin may or may not have, it is clear that the Taproot upgrade, which will be the first upgrade for the network in four years, is a major step forward for the network to improve its fundamentals Further. In the long run, this upgrade will add value and can be seen as another step towards “hyperbitcoinization”.