Introduction
Bitcoin is often cited as being the most important innovation of our generation. The magnitude of its impact can be measured by the mass adoption that it’s currently experiencing and the question is no longer if, but when.
To facilitate this mass adoption, Bitcoin needs to scale. If the Bitcoin network can only handle a handful of transactions per second and has too high of fees, then building and transacting with it would not make sense when you are dealing with millions or billions of people.
The Lightning network built on top of Bitcoin’s blockchain is an attempt at scaling but it's merely what’s called a Layer 2. It is not the fundamental settlement layer that the Bitcoin blockchain is.
The upcoming Taproot Upgrade is projected to be the most influential upgrade since Bitcoin’s inception. There are three BIPs (Bitcoin Improvement Proposals) involved - BIP 340, BIP 341, and BIP 342.
BIP 340: Schnorr Signatures
Through the implementation of Schnorr Signatures, Bitcoin will enable safer and less data-intensive transactions. If you are familiar with blockchain scanners, you’ll know you can find a library of information on every single transaction.
Schnorr Signatures will reduce the amount of information imprinted onto the blockchain and show single-signature, multi-signature, and smart contract transactions as identical. This enables more privacy and lower fees.
BIP 341: Taproot
BIP 341 utilizes Merkelized Alternative Script Trees (MASTs) to ensure that the only condition of the Bitcoin transaction that is imprinted forever onto the blockchain is the executed condition.
This enables smart contracts to operate much more efficiently and significantly lowers the fees involved.
BIP 342: Tapscript
Tapscript is a programming language that is designed to seamlessly implement the Schnorr & Taproot upgrades detailed above.
BIP 342 formally introduces the language into the Bitcoin network to ensure that developers will be able to utilize these upgrades to their full potential.
History
The history of this network upgrade traces back to 2018 when former Blockstream CTO and prominent Bitcoin core developer, Greg Maxwell, proposed it. Over 150 Bitcoin developers reviewed and iterated on the upgrades over a seven-week period in 2019. On September 13th, 2021, the Bitcoin Core v22.0 was released to provide infrastructure support for Taproot.
Implications
Taproot is considered a soft fork. This means that previous users who did not upgrade their software can still participate in the network implying that most participants will be unaffected in the short term. The real benefits of the Taproot upgrade are projected to occur when more participants utilize the advantages that it brings to the table.
Developers have been shying away from building DeFi on the Bitcoin network because of its constrained limitations surrounding smart contracts. This upgrade enables Bitcoin’s smart contracts to rival those of Ethereum. Although some argue that the Taproot upgrade has been priced into Bitcoin already, others are saying it is still undervalued.
With Bitcoin’s adoption curve surpassing that of the internet’s early phases, I have to agree with the undervalued argument.
Conclusion
In May of 2020, the mining reward on the Bitcoin network was halved. This was not reflected in its price for another 6+ months when Bitcoin appreciated by nearly 500% in 5 months from around $13,000 to $64,000. The market is bubbly and inefficient.
Nothing in this article is financial advice but if you think the Taproot upgrade increases the value of the Bitcoin network and you want exposure to the potential upside to it, feel free to check out the list below of the best exchanges out there for you to try out. Try out our country chooser in the top right corner that enables you to select your country to see which exchanges you can legally trade at.
As is the case with all investing, only invest what you are comfortable losing. Anything can happen.
Until next time! Cheers.
Join our community of fun crypto brains and grow yours too!
