Source: Business Insider
When we thought that modern-day advancements in the digital era had impressed us tremendously in the past few years, we assumed wrong.
The first bitcoin upgrade has just gone live, and it is a big deal for the world’s most popular cryptocurrency.
The update, which is called Taproot, promises greater transaction privacy and efficiency, prompting an expansion in bitcoin’s utility. On top of that, it unlocks the potential to use smart contracts, eliminating middlemen from crypto transactions.
“Taproot matters because it opens a breadth of opportunity for entrepreneurs interested in expanding bitcoin’s utility,” said Alyse Killeen, the founder and managing partner of bitcoin-focused venture firm Stillmark.
Unlike bitcoin’s 2017 upgrade, the highly controversial Segregated Witness or SegWit, which caused a civil war in the bitcoin community, Taproot has near-universal support, in part because these changes involve fairly incremental improvements to the code. The upgrade also promises to improve many things for the network, including privacy features and smart contract functions. These changes will lead to improved wallet functionality and reduced fees for complex transactions.
“Taproot is an upgrade that will improve Bitcoin’s capacity for scripting, bringing it in line with competing blockchains like Ethereum that already have programmable smart contracts,” said Cryptobriefing, a crypto research company, in a report.
Smart contracts are programs stored on a blockchain that begins to run when predetermined conditions are met. In other words, these are self-executing agreements that can be theoretically used for practically any kind of transaction, from paying for gas or buying groceries. “This enhanced functionality and efficiency present a mind-blowing potential,” Killeen said.
Currently, smart contracts can be created both on bitcoin’s core protocol layer and on the Lightning Network, a payments platform built on bitcoin, which enables instant transactions. The smart contracts on the Lightning Network typically lead to faster and less costly transactions. “Lightning transactions can be fractions of a penny while a bitcoin transaction at the core protocol layer can be much more expensive than that,” explained Killeen.
“The most important thing for Taproot is smart contracts,” said Fred Thiel, CEO of Marathon Digital Holdings. “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,” he added.
As more programmers create smart contracts on top of bitcoin’s blockchain, Bitcoin could position itself as an emerging figure in the realm of DeFi, or decentralized finance, a term used to describe financial transactions that cut middlemen in the process.
Although the bitcoin community already agreed to lock in the upgrade last June, the rollout did not happen until November. The delay was designed to give enough time to test the upgrade, preventing any massive lapses in the years to come.
“Upgrades allow the extremely remote possibility of a bug entering the system, which would destroy confidence in the whole cryptocurrency system, effectively wiping it out – a ‘self-inflicted wound’ if you like,” said Jason Deane, an analyst at Quantum Economics.
It could be remembered that in 2013, an upgrade went wrong, which resulted in bitcoin temporarily splitting in half. This is why upgrade processes are so carefully tested, retested, and vetted over very long periods of time.
Opinions expressed by Texas Today contributors are their own.