The eyes of the crypto world have spent the past few months glued to Ethereum’s transition to Ethereum 2.0, which finally went live in September after much anticipation and delay. The merger, as it was called, moved the world’s No. 2 cryptocurrency from proof-of-work mining to an energy-efficient proof-of-stake consensus mechanism.
But the world’s #1 cryptocurrency is also fresh after a recent major upgrade.
It is known as Bitcoin Taproot, and it represented a before and after moment for the oldest and largest digital coin in the world.
When was Taproot implemented?
Taproot, the most ambitious upgrade in bitcoin history, went live at block 709,632 at 05:15 UTC on Sunday, November 14, 2021.
This was the first major update since the Segregated Witness protocol update on August 23, 2017, which improved how bitcoin block chain the stored data. The Taproot upgrade, which was designed primarily to improve the efficiency and privacy of the bitcoin network, consists of three bitcoin improvement proposals.
- BIP340—Schnorr Signatures: This part provides a faster and more secure way to authorize transactions that require less data than the previous methods. An important feature is that Schnorr signatures are backwards compatible with Bitcoin’s original cryptography algorithm, meaning exchanges, wallets, and custodians can switch to the new format over time.
- BIP341 — Taproot: The upgrade’s namesake BIP uses a technique called Merkelized Abstract Syntax Tree to relieve the blockchain of excess smart contract transaction information while hiding some private transaction data.
- BIP342—Tapscript: This BIP gives bitcoin an improved transaction programming language that uses Taproot and Schnorr technology while empowering developers to implement bitcoin upgrades more efficiently in the future.
More efficiency and privacy: two sides of the same digital coin
As stated earlier, the goal of the Taproot upgrade was to make the bitcoin network more efficient and private – and improving one makes it easier to improve the other.
By committing less transaction information to the blockchain, less transaction data is available for anyone to see on the public bitcoin blockchain ledger. At the same time, reducing transaction data opens up space in each block for more transactions, increasing throughput and reducing fees.
Taproot enhances Bitcoin’s capability for smart contracts
Improving privacy and efficiency are Taproot’s primary goals, but the upgrade also enables greater smart contract flexibility – and that might be the update’s biggest long-term contribution. .
According to IBM, “Smart contracts work by following simple “if/when…then…” instructions that are written in code on a blockchain.
Smart contracts are stored on the blockchain and they execute whenever certain predetermined conditions are met. They are used to automatically execute agreements and immediately notify all stakeholders without the intervention of an intermediary. They can also automate the workflow and trigger the next action in a predetermined chain of events.
There’s no paperwork in smart contracts and no time wasted hassling details or reconciling errors. Since there are no intermediaries, the contracting parties avoid the costs and delays linked to the intervention of third parties. Smart contracts provide trust, transparency and the highest level of security.
One way to think of them is like a vending machine, which can automatically dispense a can of soda without the permission or assistance of a third party once it has verified that the buyer has put in enough money.
The road to DeFi?
Ethereum was the first blockchain to offer smart contract functionality. This capability made Ethereum the home base for the NFT and DeFi crazes of 2020-21, which made ETH the world’s leading altcoin.
Fabian Schar, professor of distributed ledger technology and fintech at the University of Basel and managing director of the Center for Innovative Finance, wrote for the International Monetary Fund (IMF) that decentralized finance (DeFi) “uses public networks blockchain to transact without having to rely on centralized service providers such as custodians, central clearing houses or escrow agents.Instead, these roles are taken over by so-called smart contracts.
Performing decentralized financial transactions without the involvement of central authorities such as banks or governments was the bitcoin main thesis in its conceptual stages. But it’s Ethereum – and its ability for smart contracts – that makes DeFi a reality.
Bitcoin’s ability to execute smart contracts is much more limited than Ethereum’s, but the Taproot upgrade has expanded that limited ability. This expansion could lead to a future where the original cryptocurrency emerges as a challenger to the world’s best altocin in the DeFi space.
What about Bitcoin NFTs?
Ethereum also hosts most of the world’s NFT protocols – and much like DeFi, ETH’s dominance in the NFT space can be attributed to its advanced capability for smart contracts.
The Bitcoin blockchain, on the other hand, cannot support NFT – kind of.
Writing for Planet Crypto, cryptocurrency expert Juhi Mirza wrote: “The Bitcoin blockchain does not natively support NFTs, but they can be minted on bitcoin-powered or Layer-2 blockchains, for example. ”
She went on to explain that a blockchain called Stacks “executes smart contracts by settling transactions on bitcoin. Stacks allows users or developers to create NFTs or NFT marketplaces that can be secured through the bitcoin network.
Several NFT platforms, including Boom, StacksArt, and STXNFT, already use Stacks to create and create NFTs. But to date, bitcoin holders still need to convert their BTC to ETH if they want to buy NFTs on the Ethereum network.
As with DeFi, it remains to be seen whether the Taproot upgrade – and the improved smart contract capability it gave Bitcoin – will create a future where Bitcoin becomes a player in the NFT space.
What is Taproot BTC Address?
Bitcoin addresses are 26-35 alphanumeric character identifiers that coin holders use to receive bitcoins. According to Bitcoin Design, there are several different address formats, each based on different specifications.
The newest of these is P2TR, or pay-to-taproot, also known as Bech32m addresses or simply Taproot addresses.
Taproot addresses, which are case-insensitive, begin with the prefix “bc1p”. An example of a P2TR Taproot address is bc1pmzfrwwndsqmk5yh69yjr5lfgfg4ev8c0tsc06e.
Previous addresses, which are still in active formats thanks to soft fork backwards compatibility, include:
- SegWit address: pay-to-witness-public-key-hash (P2WPKH)
- Script address: pay-to-script-hash (P2SH)
- Old address : pay-to-pubkey-hash (P2PKH).
Who Developed Bitcoin Taproot?
According to Cointelegraph, Bitcoin Core developers began planning to expand the capability of SegWit from the time it was implemented in 2017. The following year in 2018, Greg Maxwell, a prominent coin developer bitcoin, became the first to offer the Taproot upgrade.
Another Bitcoin Core developer named Pieter Wuille created the three BIPs that would form the structure of Taproot.
In 2020, a trio of developers named Tim Ruffing, AJ Townes, and Jonas Nick joined the project and joined Maxwell and Wuille in implementing the upgrade.
In June 2021, Taproot’s upgrade was locked when the network achieved the required critical consensus rating of 90% among bitcoin miners, paving the way for the upgrade to become a reality within five months. later in November.
How will Taproot affect the Bitcoin price?
Taproot upgraded the bitcoin blockchain during one of the most important periods in cryptocurrency history.
On November 10, 2021, four days before Taproot went live, bitcoin hit an all-time high when it peaked above $68,000. While it may seem that Taproot’s anticipation pushed Bitcoin to its highest ever value, the two events did not exist in a vacuum.
All major cryptocurrencies peaked around the same time in November 2021, as did the major equity indices – but a bear market was coming for all of them.
The price of bitcoin began to crater a few days later and in early December, BTC was trading below $50,000. It was below $40,000 at the end of January 2022, below $30,000 at the end of May, then below $20,000 at the start of the summer. Today, BTC remains in the doldrums, trading at around $20,500.
While it coincided with both, Taproot cannot take credit for bitcoin’s spike or blame for its subsequent downfall.
BTC was just one casualty in the brutal “crypto winter” that defined the market in 2022. Ethereum, gimbal and polygon had all lost around 60% of their value in September, with many other top tokens in the same unenviable position. The S&P 500 had also fallen into a deep bear market around the same time.
In 2021, Taproot became Bitcoin’s first major update in four years. It made the network faster, more efficient, more secure, and more private, and improved its ability to execute smart contracts — but don’t base your investment decisions on the hype surrounding the update.
You should base your decision to buy or not to buy bitcoin solely on your investment strategy. As BTC’s price crash has proven, Taproot is no silver bullet, and if bitcoin didn’t fit into your strategy yesterday, neither should it today.
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