This post explains how Bitcoin taproot update will impact its blockchain network.
Bitcoin is the most popular digital currency in the cryptocurrency market encompassing more than 11,000 digital currencies. Currently, Bitcoin's dominance in the crypto market stands at 43.4% with a market cap of USD 929 billion.
Although the crypto community stands firmly by it, there are certain issues that cannot be overlooked. One of the biggest concerns regarding Bitcoin is privacy. Since it operates on a public blockchain network, anyone can monitor the transactions that occur on it. However, an anticipated new upgrade called the ‘Taproot Upgrade’ has taken the crypto world by storm, and has received a great consensus from stakeholders and miners alike which favours the majority. This is the first upgrade to the crypto asset in four years, and is set to come into effect in November 2021.
What is the Taproot Upgrade?
Since the introduction of SegWit, Taproot is the most awaited technological update. Its main goal is to improve privacy, security and scalability by changing the way Bitcoin’s scripts operate. Taproot is essentially a soft fork that improves Bitcoin’s script in a way that it increases privacy of the Bitcoin network and other important factors related to complex transactions.
Let us begin by understanding the basics of Bitcoin, and why this upgrade could be revolutionary for the crypto world. Bitcoin blockchain is composed of computer code. Whenever you send a transaction on it, a private key is used to provide a signature and authorize the transaction. When a more complex transaction occurs, it requires multiple signatures or mandates a waiting period called ‘timelock’. Once the transaction is completed, these scripts become public on the Bitcoin network, while potentially exposing some details about the people involved in the transaction.
This is exactly where the Taproot upgrade proves to be beneficial. With Taproot, these complex transactions can look like standard, person-to person transactions. It combines multiple people’s public keys to create a new public key, and combines their signatures to create a new unique signature. This is done through a device called Schnorr signatures. It enhances the privacy for all the parties involved, and reduces the amount of public data.
How is the Taproot Upgrade beneficial?
Below are some of the ways in which the Taproot upgrade will impact the Bitcoin network.
The Taproot Upgrade does not increase anonymity on individual Bitcoin addresses, but it will increase your privacy in terms of each transactions. Taproot will make complex transactions that may require multiple signatures indistinguishable from a simple one-on-one transaction. Since your keys won’t have as much exposure on the blockchain, the amount of data made public will be reduced.
Cheaper smart contracts
The Taproot Upgrade seems to be a game changer for smart contracts. It will make these self-executing agreements cheaper and smaller in terms of the space they take up on the blockchain.
Lightning network boost
As of today, smart contracts can be either created on Bitcoin’s core protocol layer or on the Lightning network. This network is a payments platform built on Bitcoin that enables instant and less expensive transactions. The Taproot upgrade will make transactions on the Lightning network even cheaper and private. It will amplify and scale payments, and allow for highly specific smart contracts.
Low transaction costs
Since the Taproot upgrade will reduce the amount of data needed while enabling Bitcoin transactions, this will lead to lower transaction costs, which have otherwise become quite high due to Bitcoin’s increased popularity.
This upgrade enables transactions through a new type of signature. It is going to enhance the smart contract functionality, making it easier and more flexible for users to carry out complex transactions.
How will the Taproot Upgrade impact Bitcoin?
The first Bitcoin upgrade in four years has received a rare consensus from the crypto community and several experts, that this is going to be a revolutionary upgrade to the world’s favorite cryptocurrency to hold, buy or sell. The Taproot Upgrade is foreseen to impact Bitcoin in several positive ways.
This upgrade will boost Bitcoin’s functionality and broaden its market. With over $1 trillion of the market value riding on Bitcoin’s network, it may provide a good return for speculators. It even represents the opportunity to make an early investment in this transformative technology.
Taproot Upgrade combined with Schnorr signatures will bring major improvements to the Bitcoin network’s privacy, boosting efficiency while carrying out transactions.
The amount of data transferred and stored on the blockchain will decrease drastically, improving the usability of Bitcoin. With lower transaction fees and faster payments, the Taproot upgrade will speed up the process of complex transactions and open its market to new prospects.
A very important benefit of this upgrade is that signatures won’t be malleable anymore. The Bitcoin network has a security risk, where it is possible to alter the signature of a transaction before it gets confirmed. This would make it appear like the transaction never happened or it failed. The problem of double spending or fraud will also be solved by Taproot Upgrade.
Although the upgrade is highly supported and expect by experts and crypto-lovers, it’s only likely to come into effect from November 2021. This is because these upgrades have to be thoroughly tested and retested again and again, to ensure that there are no security concerns. This rigorous testing reduces the likelihood of any bug entering the system, and makes sure that nothing goes wrong in the system. If it surpasses these tests, there will be significant improvements in terms of privacy, usability, scalability and more.
With this upgrade, the future of Bitcoin seems to be phenomenal. If you are planning to invest in a cryptocurrency right now, Bitcoin is a strong contender. XanPool is an internationally compliant fiat-to-crypto gateway software solution for cryptocurrency businesses. It’s smooth and automated software makes it easy to sell and buy cryptocurrencies without any risk.
With traditional forms of transaction being wiped out, cryptocurrencies, especially Bitcoin, are set to dominate the financial world. Moreover, with Bitcoin’s increasing mainstream adoption as a digital currency, the upgrade adds as a benefit to Bitcoin’s core characteristic. Overall, the new upgrade is highly welcomed by most people, since it will make the crypto asset more user friendly and give a competitive edge to other digital currencies.