Bitcoin just had a major upgrade, here is what you need to know about it.
On November 14, Bitcoin underwent the Taproot upgrade which was activated at block 709,632. The groundwork for this upgrade was laid down back in June when 90% of the Bitcoin miners chose to signal their “support”.
When a miner signals for support, it displays that they are willing to upgrade and run the new Bitcoin software with the upgraded code. To signal for Taproot, miners needed to add a “4” to the version bits of the blocks they mined. Once 90% of the miners did so, the upgrade was finally put into a waiting period. During this programmed waiting period, miners and operators had the time to fully upgrade to Bitcoin core 21.1, which contains the code for Taproot.
Let’s break down the various components of this upgrade to fully understand what it means and how it would benefit Bitcoin users and miners.
What is Taproot?
Taproot is an upgrade that is meant to streamline transactions, making it more time-efficient to process them. Before this upgrade, every single transaction had to be verified by digital signatures (aka wallet keys).
This meant that users needed to approve transactions with their wallet keys before Bitcoin was debited from their wallet. This was a time-consuming process, particularly for transactions that needed to be verified by more than one signature. The upgrade makes it possible for multi-signature transactions to be clubbed together and verified at the same time to speed up the process.
What are the benefits of the Taproot upgrade?
Yes, this upgrade speeds up transactions, but that’s not the only benefit it has to offer. Before this, you could distinguish the signatures—multi- and single-signature—of a transaction. Thus, one would be able to infer that a wallet with multiple signatures (or multiple levels of security) means it has more coins in possession. This used to end up drawing unnecessary attention to such multiple signature transactions.
Because of the single verification process, it will now be hard to distinguish between multi- and single-signature transactions, essentially strengthening the safety of your wallet.
Since the process is entirely streamlined now and takes less time, it increases the overall number of transactions that can be processed. As more transactions get processed, the fee for each individual transaction falls.
Finally, the biggest benefit of this upgrade is that it opens doors for a myriad of potential applications of Bitcoin. Noelle Acheson, Head of Market Insights at Genesis, a digital currency prime broker, says,“More flexible transaction types and lower costs are likely to support more development of DeFi (decentralized finance) and NFTs (non-fungible tokens) on Bitcoin, and could set the stage for a wave of technological progress on the original crypto network.”
Ultimately, this update seems to be a positive turn for Bitcoin’s future, bringing about additional privacy, increased transaction speed, lower transaction costs as well as increased scalability.
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