BTC Taproot Upgrade Is Approved For Implementation This November

June 15, 2021 04:00 PM
Crypto Story of the Day

Crypto Story of the Day




The Top 10 was unchanged this morning as BTC tested resistance at USD 40,000. Polkadot (DOT) was the exception and was outperforming ahead of its listing on Coinbase tomorrow.

Crypto Story of the Day

On Saturday, BTC’s Taproot upgrade received enough support from miners, locking in its implementation for November. According to its supporters, Taproot enables a range of innovations related to BTC-based smart contracts and scaling.

Under a “speedy trial” approach to deploying Taproot, the first major upgrade to BTC since SegWit in 2017, miners had 3 months to “signal” their support for the upgrade by appending mined blocks. 

According to its supporters, the Taproot upgrade introduces the foundation for a range of innovations in the way the BTC can be used. For example, the upgrade introduces the option of using the Schnorr signature scheme, an approach to storing data about the private keys which signed or authorized a transaction. 

Advantages of Schnorr include making multi-sig or multi-private key wallets indistinguishable from regular single key wallets. This is advantageous, as it allows large, sophisticated holders who most often utilize multi-sig to better protect their privacy. 

Schnorr signatures also improve the privacy of other layer-2 applications, such as Lightning Network (LN) channels, which often employ multi-sig wallets. The signature scheme also lowers the data size of signatures, lowering the costs of transactions which utilize it.

This also contributes to scaling by decreasing the data-load of transactions. As a result, more transactions can be added to blocks on the BTC blockchain, which are limited to 4 megabytes of transactions. 

In addition, Taproot allows wallets to have more sophisticated conditions attached to the movement of funds, expanding the capacity of building smart contracts into the BTC blockchain. Moreover, Taproot allows for aspects of these conditions to be hidden from 3rd parties, further increasing the privacy of actors using such wallets. 

While most current users of BTC have limited immediate need for the features enabled by Taproot, the upgrade offers the foundation for future innovation. For example, 3-signature multi-sig wallets can be designed to switch to 2 signatures after 2 years of no outbound transactions.

This could potentially address situations where a private key holder in a multi-sig setup is unable to sign the release of funds, as was the case with OKEx in 2020.  

In an interview with CNBC on Monday, Paul Tudor Jones said he’s attracted to BTC because the coin is “a 100% certain.” BTC proponents will highlight that Taproot won’t alter any of the coin's core features, such as its inflation rate or adjusting mining difficulty. As such, Taproot seemingly adds new functionality but doesn’t interfere with any other feature that’s attracted investors like Jones to date. 

Moreover, as has been the nature with past BTC upgrades, users will be able to decide to not use any of the new features. At the same time, the upgrade is described as creating a foundation for new technical possibilities and more sophisticated use of BTC.

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