The crypto market is witnessing a massive correction over the past few months. This mainly comes after China banned the mining and trading of cryptocurrencies in the country. Traders and investors have been struggling for a while now, with Bitcoin hitting as low at $29,000. However, this is probably one of the best times to invest in the crypto space, especially after the news of Bitcoin receiving its first upgrade in four years. That’s right!! Bitcoin's Taproot upgrade, the crypto asset's first upgrade in four years, was just accepted by miners all over the world.
The majority of stakeholders agreed on the upgrade. Moreover, many experts believe it could be a watershed moment for the world's largest cryptocurrency, given the overwhelming support from miners in accepting and implementing it. The Taproot upgrade is scheduled to go live in November 2021.
This upgrade has two sides, according to Sathvik Vishwanath, co-founder, and CEO of Unocoin. He said:
“On the first side, it is expected to bring in better privacy and transparency in transaction, and on the other side, this is the first time the smart contracts capability is being added to the bitcoin blockchain network. These features are already available in other different coins and as it has been a successful experiment in them so far, it is even getting copied in bitcoin, which is the world's popular and widely spread cryptocurrency."
Despite being the most popular cryptocurrency, Bitcoin received its last substantial upgrade four years ago. Edul Patel, CEO, and co-founder of Algo-based crypto trading platform Mudrex, stated:
“Many referred to the previous upgrade as a 'civil war' of sorts as it caused a massive ideological divide.”
Bitcoin's transformation is due to digital signatures, which may be considered as the fingerprint individual leaves on every transaction they do. Currently, the cryptocurrency employs the “Elliptic Curve Digital Signature Algorithm,” which is derived from the private key that controls a bitcoin wallet and ensures that Bitcoin can only be spent by the rightful owner. According to Alejandro De La Torre, vice president of Hong Kong-based big mining pool Poolin, Taproot will convert to Schnorr signatures, which essentially render multi-signature operations unreadable.
In practice, this creates higher privacy because your keys will not be exposed as much on the chain. “You can hide who you are a little bit better, which is good,” said Brandon Arvanaghi, a former security engineer at cryptocurrency exchange Gemini.
It will not increase the anonymity of your bitcoin address on the public blockchain, but it will render simple transactions indistinguishable from those that are more complex and require multiple signatures.
This update will have a significant impact on Bitcoin. Smart contracts, which are self-executing commitments that exist on the blockchain, would benefit greatly from these improved signatures. Also, it will enable smart contracts to theoretically be utilized for almost any type of transaction, from monthly rent payments to automobile registration.
Taproot reduces the amount of space smart contracts take upon the blockchain, making them cheaper and smaller. According to Alyse Killeen, the increased utility and efficiency has "mind-blowing possibilities."
Smart contracts may currently be formed on both bitcoin's core protocol layer and the Lightning Network, a bitcoin-based payments network that allows for instant transactions. Generally, smart contracts implemented on the Lightning Network often result in transactions that are faster and less expensive.
Fred Thiel, CEO of cryptocurrency mining specialist Marathon Digital Holdings, said:
“The most important thing for Taproot is...smart contracts-It’s already the primary driver of innovation on the Ethereum network. Smart contracts essentially allow you to really build applications and businesses on the blockchain.”
As more developers create smart contracts on top of Bitcoin's blockchain, Bitcoin can become a bigger player in the world of DeFi or decentralized finance. Today, Ethereum reigns supreme as the blockchain of choice for these decentralized apps, commonly known as "dapps."
Taproot upgrade is the most significant enhancement to the Bitcoin network since the 2017 block size increase. Also, the relative rarity of Bitcoin updates underlines one of its key characteristics: It's tough.
Making changes to Bitcoin is difficult. However, there is no one in charge of deciding what changes are implemented. Obtaining consensus among such a wide and distant collection of individuals is, to say the least, difficult. The fact that Taproot is almost universally supported emphasizes how significant this improvement is.
People have different views about the upgrade. Besides, some institutional investors and crypto community experts have also expressed their views about Taproot. Moreover, Taproot is particularly important because the update will be implemented as a soft fork, which means the changes are backward compatible. Now, Nadav Kohen, a security engineer at Suredbits, says:
“The Bitcoin network is conservative, and we don’t make backward-incompatible changes...the argument could be made it isn’t right to deny Satoshi his coins with a backward-incompatible change.”
Kohen is excited that Taproot gives a foundation:
“...the improvements lay the groundwork for future potential upgrades that may improve efficiency, privacy, and fungibility further.”
Taproot employs three different technologies, each of which will be explained by one of our two experts. Privacy advocate D++, a revolutionary cypherpunk and Bitcoin maximalist, was one of the experts who shared her thoughts on Taproot's potential price impact. D++ says, “Taproot makes Bitcoin better...and is not yet priced in.”
She applauds the advancements in Bitcoin Script and smart contracts, as well as the fact that multisig transactions, including Lightning channels, now all appear the same, yielding increased anonymity.
Edul Patel said:
“Bitcoin's Taproot upgrade might just be the key element that would propel it into mainstream finance. The bottom line is the kind of revolution that the Taproot upgrade might bring for Bitcoin is phenomenal.”
The price of cryptocurrencies is determined by the actual use cases for the digital asset that are adopted by the general public. And with the Taproot upgrade, the price of Bitcoin will start to go higher, and the Altcoins are 100% likely to follow the suit.