In June of this year, 95 percent of major Bitcoin pools signalled their intention to implement Taproot, an upgrade to the Bitcoin network designed to boost its privacy, efficiency and smart contracts capability. Taproot will be activated when it reaches block #709,632, estimated to be around November 14.
Taproot – An Overview
Taproot represents Bitcoin’s first major upgrade since August 2017, when Segregated Witness (SegWit) was implemented. This led to the creation and launch of the Lightning Network.
While SegWit sought to improve Bitcoin’s scalability, Taproot’s focus is on efficiency, privacy and the support of smart contracts. The Taproot upgrade, due to go live on November 14, encompasses three Bitcoin Improvement Proposals (BIPs).
BIP-340 – Focused on Privacy and Reducing Transaction Costs
Introduces the main component of Taproot, deploying a feature known as Schnorr signatures. This helps to fix some privacy and space issues that SegWit introduced back in 2017.
In order to generate public and private keys, Bitcoin uses an elliptic curve digital signature algorithm that allows users to sign a transaction with a private key, revealing a public key in the process. When two or more signatures are used (such as with a multi-sig wallet), multiple public keys are revealed, resulting in larger transactions, thus increasing transaction fees.
BIP-340 therefore improves Bitcoin’s privacy and scalability by adding Schnorr signatures, which allow for key aggregation, making transactions smaller and therefore cheaper.
BIP-341 – Focused on Making More Secure Smart Contracts
Introduces Merkelised abstract syntax trees (MASTs) to make smart contracts on Bitcoin more secure.
This feature uses Schnorr signatures to create MASTs to make smart contracts more private and secure. Once live, only conditions that made a smart contract pass will be revealed, rather than all the conditions that it failed on. The idea here is that as as a result, Bitcoin smart contracts will be more secure as hackers have fewer data points or attack vectors to exploit.
BIP-342 – Focused on Improving Future Upgrades and Bringing More Smart Contract Flexibility
Introduces a new scripting language called Tapscript that complements the other two BIPs and makes future upgrades to the Bitcoin network possible through soft forks, rather than hard forks.
In addition, it will provide Bitcoin smart contracts with more flexibility and freedom by removing the 10,000-byte size limit. This is said to enable developers to do more exciting things using Bitcoin smart contracts in the future.
Bitcoin Rallies to New All-Time High
Shortly after printing a new all-time high in October, BTC slipped below US$60,000 following a brief US$1 billion liquidity flush.
However, Bitcoin tends to perform well in Q4 and this one appears no different. Bitcoin balances on exchanges hit the lowest point since August 2018, suggesting investors see significant upside on the horizon. On November 8, BTC shot up US$2,000 in a matter of hours, eclipsing US$65,000.
At the time of publication, bitcoin had surged overnight, reaching a new all-time high of US$67,771.
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