- The taproot upgrade has activated, the biggest one since yet another upgrade four years ago tore apart the Bitcoin community in a civil war.
- Taproot will enhance privacy and even cut costs, but it could spell trouble for Ethereum moving forward.
The biggest upgrade on the Bitcoin network in the past four years has activated at last. Taproot upgrade will enhance privacy for Bitcoin through a change in the network’s signature algorithm and even lower the transaction costs. But it could also spell trouble for Ethereum, the king of altcoins and the ultimate dApp and DeFi network.
Taproot was proposed by core developer Greg Maxwell back in January 2018. It was eventually approved unanimously by BTC miners in June this year. Since then, the developers have been testing and reviewing the upgrade. It’s now live on the BTC blockchain, having activated today, November 14.
Read More: Bitcoin Taproot upgrade locked over the weekend, due to be enacted in November
At long last, BIP341/342 (“taproot”) are active on Bitcoin mainnet. Thanks to everyone involved for getting us this far!
The real work will be in building wallets/protocols that build on top of it to make use of its advantages. I’m very excited to see where that takes us.
— Pieter Wuille (@pwuille) November 14, 2021
The aim is to make Bitcoin more private and secure for its users, as well as set the stage to make it more scalable. All these go towards giving Bitcoin more utility, Alyse Killeen believes. The founder and managing partner at Stillmark, a Bitcoin VC firm commented:
Taproot matters, because it opens a breadth of opportunity for entrepreneurs interested in expanding bitcoin’s utility.
What is Taproot, and why is it a big deal?
Bitcoin developers and users are quite excited about the activation of Taproot, and rightfully so. It could usher in a new dawn for Bitcoin and hopefully reignite BTC as the ultimate cryptocurrency.
One of the biggest changes will be on privacy on Bitcoin. Taproot will finally change the signature algorithm that Bitcoin has relied on for years. Signatures on Bitcoin are kind of like a fingerprint that you leave on every transaction you conduct with your wallet, linking you to that transaction.
For years, we’ve relied on the Elliptic Curve Digital Signature Algorithm which creates the signature from the private key that controls your wallet. We will now rely on Schnorr Signatures which will make Bitcoin transactions more private and secure. The biggest effect will be on multi-signature transactions which will be virtually unreadable. The change will be a result of the activation of Bitcoin Improvement Proposal (BIP) 340.
“You can kind of hide who you are a little bit better, which is good,” Brandon Arvanaghi, a Bitcoin developer and founder of corporate cryptocurrency investment platform Meow pitches in.
It’s, however, important to note that Schnorr Signatures won’t make Bitcoin a privacy coin like Monero or make it impossible to trace your transactions.
Taproot will also go a long way in making smart contracts more ubiquitous on Bitcoin. As it stands, smart contracts are available on Bitcoin, both on its core layer and on the Lightning Network. However, not many think of Bitcoin as a smart contracts platform. Ethereum is the dominant player in this sector. In fact, smart contracts are the biggest reason that Ethereum has soared. They are behind decentralized applications (dApps) and decentralized finance (DeFi), both of which have made Ethereum the dominant force it is today. They also made NFTs possible.
Taproot will make it easier to execute smart contracts on Bitcoin, making them cheaper and smaller when it comes to the space they occupy on the BTC blockchain.
Fred Thiel, the CEO of Bitcoin miner Marathon Digital Holdings, commented:
The most important thing for Taproot is smart contracts. It’s already the primary driver of innovation on the Ethereum network. Smart contracts essentially give you the opportunity to really build applications and businesses on the blockchain.
It’s on this metric that Taproot poses the biggest danger to Ethereum. Already, Ethereum is facing competition from other altcoin projects, with Polkadot, Solana, BSC, Cardano, Avalanche, Terra and TRON already seeing billions of dollars in total value locked on their DeFi projects.
However, competition from Bitcoin would be a completely new dragon to slay for the Vitalik Buterin-led project. Bitcoin already has the brand name and is the most recognizable project. It’s also worth way more and it has the biggest following. And all this is before smart contracts become popular on the Bitcoin blockchain.
Already, there are efforts to bring DeFi to Bitcoin. One of the most prominent is by foremost Bitcoin maximalist and Twitter boss Jack Dorsey Back in July, he announced that his other company Square would launch a new business “with the sole goal of making it easy to create non-custodial, permissionless, and decentralized financial services. Our primary focus is Bitcoin,” he tweeted at the time. There are rumors that this business is about to launch, just as Taproot is activated (coincidence? Don’t think so).
Aside from the benefits it brings, Taproot is also symbolic for Bitcoin, and this is just as important. The last time Bitcoin received an upgrade was four years ago, and it didn’t go too well. This was the Segregated Witness (SegWit) upgrade that led to a civil war and infighting in the Bitcoin community and eventually led to some forking away to form their own Bitcoin iterations.
In his 29-page report on Taproot, Arrington Capital’s Ninos Mansor noted:
The upgrade could be a macro turning point for evolvability and innovation, merging the best of post-Segwit conservatism with the energy of new beginnings. It is a meta-upgrade, a chance to redefine what it means to contribute to bitcoin, whether one is a miner, developer, or full node.
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