Starting November 15th, Bitcoin has launched an upgrade that’ll change the blockchain system for the foreseeable future.
It’s a major change. The update allows blockchain to process very complex transactions, widening Bitcoin’s use, and making it more attractive than its competitors in the smart contract world (specifically Ethereum).
(Quick Definition): A smart contract is a transaction automatically executed with results based on pre-designed inputs.
More Info on the New Changes
Taproot is the name of the new update. It’s the most drastic change Bitcoin has witnessed since the introduction of SegWit (or Segregated Witness) back in 2017.
SegWit is a protocol that modified Bitcoin’s block capacity. It allowed the system to execute increased transaction amounts as could be fit in a block, utilizing signature data from other Bitcoin transactions.
Many brokerage firms welcome the new change, one being Genesis (a prime broker for digital currencies). Specifically, Head of Market Noelle Acheson sees that Bitcoin’s applications have increased with Taproot’s introduction:
“More flexible transaction types and lower costs are likely to support more development of DeFi (decentralized finance) and NFTs (non-fungible tokens) on bitcoin, and could set the stage for a wave of technological progress on the original crypto network,”
Genesis isn’t the only firm praising the changes to Bitcoin. The general market has reacted positively to its introduction, with a price spike pushing Bitcoin to $69,000 by November 10th (this being an all-time high for the currency).
Thus far, Bitcoin’s value has increased by 47% throughout the past two months.
Bitcoin plans to introduce Taproot through a threefold proposal. But fundamentally, the project introduces an upgraded digital signal titled “Schnorr.”
Schnorr’s goal is to improve Bitcoin transaction efficiency while increasing its privacy features. Plus, Schnorr, contributes to Biitcoin’s execution of high smart contract quantities.
Taproot’s Official Activation
The system was activated on November 14th starting with block 709,632. Do note that blockchains finalize transactions through batches called blocks, which each block containing a limited transaction amount.
Even with the recent launch, Taproot was called for as far back as 2016, with participants demanding better transaction efficiency. The software for Taproot was incorporated into Bitcoin just past September.
How Does Taproot Impact Bitcoin?
Taproot allows the currency to process additional smart contracts, a concept similar to that of Ethereum, and a historical point of difference between both currencies.
The biggest impact would be the bitcoin network’s ability to process more smart contracts, similar to what Ethereum does.
Taproot essentially narrows the gap between Bitcoin and Ethereum’s level of flexibility, allowing Bitcoin better use for day-to-day applications.”
How Does it Improve Security?
Taproot boosts privacy by obscuring the transaction types executed. This is what Schnorr signatures are used for, allowing the creation of more complex transactions. Those include wallets that need multiple complex signatures.
Additionally, Taproot makes Bitcoin transactions data-efficient, reducing block capacities and reducing transaction fees.
Taproot’s Benefit for Investors
Those upgrades are a step in the path of innovation for Bitcoin’s network, with the previous being Lightning Network (launched back in 2017). Taproot should lead to cheaper creation of smart contracts, a fundamental goal for other upgrades to come.