The bitcoin blockchain (BTC) will receive its first update in four years after miners around the world enter into a rare consensus on the future of the largest cryptocurrency network on the market. Called Taproot, the update is expected to arrive in November to increase the privacy and efficiency of digital currency transactions, unlocking potential for creating smart contracts.
First update since 2017
“The Taproot update is important because it opens up a broad opportunity for entrepreneurs interested in expanding the usefulness of bitcoin,” said Alyse Killeen, founder and managing partner of the bitcoin-focused venture firm Stillmark, to CNBC.
The ability to create smart contracts on the bitcoin blockchain is an increasingly important feature for cryptocurrency to be something more than just a speculative digital asset. This tool makes it possible to eliminate intermediaries even in the most complex transactions, further automating the processing of transactions within the digital currency network.
Bitcoin was last updated in 2017 and was dubbed the “civil war” because of the huge ideological divide among miners at the time. To solve problems of high transaction rates and slow data processing, much was discussed about the network’s internal protocols. One of the proposals even suggested splitting the cryptocurrency in two.
Now, unlike the previous update, Taproot has received almost universal support among miners around the world. This is because the improvements are undeniably beneficial to bitcoin blockchain code and have virtually no downsides.
Taproot to rework “digital signatures”
“Digital signatures” will be at the heart of upcoming changes in the cryptocurrency network. Currently, the bitcoin blockchain uses something called the “Elliptic Curve Digital Signature Algorithm”, which is created from a wallet’s private key and ensures that the digital currency can only be spent by its rightful owner.
With the arrival of Taproot, this protocol will be migrated to so-called “Schnorr Signatures”, which will make transactions with multiple signatures unreadable. In practice, this means greater privacy for cryptocurrency users because private keys will no longer have as much exposure on the network.
However, this will not result in greater anonymity for individual addresses in the public bitcoin blockchain, which is a constant concern of governments in the fight against money laundering using cryptocurrencies. Essentially, transactions will become simpler and indistinguishable from those that are more complex and made up of multiple signatures.
Smart contracts will be easier and cheaper
In addition to these direct effects, the new enhanced subscriptions are also a game changer for smart contracts, which are automatic deals based on the blockchain. They can be used for virtually any type of transaction, from paying monthly scheduled rentals to even purchasing and registering a new vehicle.
In that sense, Taproot makes these smart contracts cheaper and simpler in terms of space consumed on the blockchain. Thus, the bitcoin network can become a more viable option for creating these tools that are gaining more and more popularity.
Today, smart contracts can be created either at the core bitcoin protocol layer or on the Lightning Network, a payments platform built on the cryptocurrency blockchain that enables instant transactions. Smart contracts executed in this way often offer faster and cheaper transactions.
Fred Thiel, CEO of Marathon Digital Holdings and a specialist in cryptocurrency mining, told CNBC that smart contracts will be the highlight of this update. The resource is already the biggest innovation factor in the Ethereum network and is one of those responsible for enhancing ether (ETH). “Smart contracts essentially provide the opportunity to build applications and businesses on the blockchain,” he explained.
With information: CNBC