On November 14, the long-awaited Bitcoin upgrade Taproot was activated at block 709,632, kindling the DeFi and dApp ecosystem around decentralized currencies, providing more Ethereum-like functionality.
However, while Taproot received almost universal support from the Bitcoin community (unlike the 2017 SegWit split upgrade), there were no significant changes in price or volume.
Some are surprised to expect a greater impact, but they shouldn’t.
While Taproot’s upgrade is turning Bitcoin into the future with a series of privacy and efficiency upgrades, Coin remains relatively conservative in cryptocurrencies, primarily as a valuable store in the short term. increase.
What is a Taproot update
The Bitcoin community updates Bitcoin with a soft fork every four years. New features will be introduced primarily through the Bitcoin Kaizen Proposal (BIP).
Unlike previous upgrades, Taproot is not a single enhancement to the Bitcoin network, but a larger upgrade that includes three improvement suggestions (BIP340, BIP341, and BIP342).
Greg Maxwell proposed this upgrade in 2018. Since then, three BIPs created by Pieter Wuille, Tim Ruffing, AJ Townes and Jonas Nick have been compiled into Taproot and integrated into Bitcoin Core in October 2020.
The Taproot upgrade aims to improve transaction privacy and the efficiency of the Bitcoin network.
Proposal content:
- BIP340 Adds a Schnorr multi-signature approach that is also compatible with previous elliptic curve digital signatures.
- BIP341 Using the aggregated signature feature, we propose a new network payment method called “Pay-to-Taproot” (P2TR) that uses the MAST (Merkle Tree) data structure.
- BIP342 A new scripting language called Tapscript has been added to improve the Bitcoin network, helping Schnorr’s aggregate signature and Pay-to-Taproot payment path validation, with room for future upgrades to the Bitcoin network in terms of smart contracts. Improve the comprehensiveness and flexibility of P2TR while providing.
Impact on Bitcoin
low cost
- One of the main advantages of Schnorr signatures is the ability to capture multiple keys and generate a unique signature in a complex Bitcoin transaction. This means that signatures involving multiple parties can be “aggregated” into a single Schnorr signature.
- This is welcomed as the most important technical update since Bitcoin Segwit.
- Schnorr signatures reduce the amount of data required for multi-signature transactions. As a result, transaction processing costs are lower and transaction fees are reduced.
Better privacy
- MAST data structures based on the Schnorr multi-signature approach can contain complex transaction information. This allows you to view a multi-signature transaction or a transaction with multiple addresses as a single standard transaction.
- Multi-signature transactions are indistinguishable from simple transactions. That is, the addresses involved in multi-signature transactions have a higher level of anonymity and privacy.
Smart contract support
- Taproot upgrades reduce the output of transactions on the network, opening up the possibility of deploying complex smart contracts.
- At the same time, Taproot provides an extended toolkit for developers to continue developing with Bitcoin.
Summary: At the heart of the Taproot upgrade is the Schnorr signature. It brings a whole new combination of performance, privacy and even smart contract possibilities to Bitcoin.
Can Taproot improve BTC’s competitiveness?
Both Bitcoin and the Ethereum network are based on the concepts of distributed ledgers and cryptography, but they differ significantly in terms of technical specifications.
For example, Bitcoin acts as a digital version of gold and is used to store value. Ether makes a profit by powering applications and supporting the network.
One of the main differences between Bitcoin and Ether is that Ether supports and operates smart contracts and provides developers with a way to create new applications.
Today, Ethereum dominates as the preferred blockchain for these applications, also known as dApps or decentralized applications.
Most decentralized finance and NFT applications are built on Ethernet networks. As the use of Ether in DeFi and NFT became widespread, Ether established itself as a pioneer in cryptographic applications.
Ethereum has more transaction volumes, but Bitcoin’s cryptocurrency capabilities and superior network security can also attract liquidity that stays on the network in the long run.
Like gold, Bitcoin is stable, limited to 21 million coin mints, and its value as a digital gold savings has gained more consensus.
Taproot makes the Bitcoin network more attractive for building DeFi protocols and increases user demand. Many Bitcoin followers consider this upgrade to be sent by the DeFi god of the Bitcoin network.
However, many analysts such as Zootprint Analytics’ Zoni are not convinced that Taproot will turn Bitcoin into a smart contract ecosystem.
Positioned as a peer-to-peer electronic caching system, Bitcoin does not have a mature “virtual machine” EVM (Smart Contract Runtime Environment) to run smart contracts that support the storage, execution and validation of smart contracts.
Therefore, it is difficult to attract more dApp or DeFi projects to program and build projects on the chain. There is still a long way to go for Bitcoin to become a programmable platform with a DeFi ecosystem.
It is no exaggeration to say that Bitcoin development is slow.
One reason for this is the PoW consensus mechanism, which requires up to 50% of the Bitcoin node consensus on every change. Even with Taproot, it’s unlikely that you’ll catch up with the rapid development of DeFi.
In addition, only half of the known Bitcoin nodes show support for upgrades, and the rest are still running older software. That is, the new Taproot rules have not yet been implemented.
The actual activation of Taproot, including Schorr, will not start until next year.
This report was provided by Footprint Analytics.
Footprint Analytics is an all-in-one analytics platform for visualizing blockchain data and discovering insights. Clean up and integrate on-chain data so users of all experience levels can quickly start exploring tokens, projects, and protocols. With over 1000 dashboard templates and a drag-and-drop interface, anyone can create their own customized charts in minutes. Reveal blockchain data and invest smarter with Footprint.
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