Bitcoin’s Taproot soft fork has been upgraded, and analysts expect privacy and scalability to improve


November 14, 2021
bitcoin cryptocurrency

Time has given bitcoin too much experience. Dubbed "a tulip bubble" in 2013, it dipped below $30,000 in July 2021, while this week it hit a record high of $68,991.

Time to give bitcoin the latest mark is, according to The Oco Cloud link data shows that at 13:18 on November 14, Beijing time, through the use of Schnorr signature, MAST and Tapscript, bitcoin network upgrade completed, the current bitcoin block height of 709632, Taproot upgrade block height.

Taproot, announced in 2018 by Greg Maxwell, a core bitcoin developer, will dramatically increase the flexibility of bitcoin smart contracts by combining Schnorr signatures with Merkel's Abstract Syntax Tree (MAST) and Tapscript's new scripting language. While enhancing bitcoin's privacy and scalability.

Because bitcoin is driven by "technology," analysts believe Taproot will not only improve the availability of bitcoin, but also broaden its market, potentially expanding its value. Bitcoin is currently hovering around $64,643 a coin, up 1.51% in 24 hours.

Enhanced privacy and scalability

Taproot was upgraded to a soft fork on the Bitcoin network, activated at bitcoin block height 709632. This update enables complex transactions (multiple signatures, time locks) to be executed just like normal Bitcoin transactions, enhancing bitcoin privacy with lower fees and greater ease of deployment.

According to Wikipedia, a bitcoin fork is defined as a change in the protocol on the Bitcoin network, or when "two blocks have the same height." Bifurcation affects the validity of the protocol. Intentional forks are often used to add new features to a blockchain, or to recover the effects of a hacking attack or serious error.

Hard forks and soft forks are two forms of bitcoin forks. A hard fork is a protocol upgrade that is entirely new or removes rules. A hard fork does not cause the blockchain to fork if all users upgrade.

A soft fork is a protocol upgrade that can change or add rules. A soft fork upgrade may cause the blockchain to fork, but the enforcement of most hash algorithm functions ensures eventual convergence over the history of the same transaction. Miner activated soft forks (MASF) are triggered by the mining machine, while user activated soft forks (UASF) are triggered by the user.

Similar to the impossibility triangle of currency exchange rate, the impossibility triangle problem also exists in blockchain, that is, it is extremely difficult to realize the three conditions of privacy, spatial efficiency and computational efficiency simultaneously in blockchain network, and the improvement of one of the two conditions will be at the expense of the third condition.

The Taproot update changes how Bitcoin works, changing the way transactions are signed, removing unnecessary information exposure and reducing the overall amount of data consumed by transactions. As a result, Taproot enhances privacy for users and allows more complex transactions to be crammed into a block, making the network more efficient, with lower transaction fees and easier to deploy.

Specifically, the upgrade consists of three separate Bitcoin Improvement Proposals (BIPs) : BIP340, BIP341 and BIP342.

BIP340 replaces Elliptic Curve Digital Signature Algorithm (ECDSA) with Schnorr Signature, that is, Schnorr Signature Algorithm can aggregate multiple signatures into a single Signature to optimize the verification and authentication process. By reducing the space, transaction fees can also be reduced to some extent.

BIP341 is pay-to-taproot (P2TR), a new bitcoin payment method. MAST (Merklized Abstract Syntax Tree, P2TR, P2TR, P2TR, P2TR) Merkle abstract syntax tree), the P2TR structure displays only an adjusted public key generated by combining a Merkle tree containing expenditures with the original public key. Combined with Schnorr, it not only reduces the volume of BTC transactions and eliminates the need for recipients to attach lengthy scripts to transactions, but also greatly protects user privacy.

BIP342 refers to the reform of bitcoin's scripting language through Tapscript and is a complementary upgrade to Schnorr and Taproot. Tapscript enables bitcoin nodes to create and validate pay-to-taproot (P2TR) outputs to evaluate scripts. Taproot changed the way signatures are evaluated to improve Schnorr's efficiency, and added several new opcodes to make Tapscript more flexible.

End of the year bullish?

The Taproot soft fork typically has only a limited impact on bitcoin prices, not to mention the fact that bitcoin broke through its historic price line this week, pushing bitcoin to an all-time high of $68,991, with some investors taking long positions ahead of the upgrade.

According to Ben Caselin, head of research and strategy at cryptocurrency exchange AAX, bitcoin's current rally has been largely driven by the successful launch of the first two Bitcoin ETFs in the US, combined with a social media vote by Tesla CEO Elon Musk. "With the recent surge of Shiba and other cryptocurrencies, and Facebook's name change to Meta, interest in cryptocurrencies continues to rise."

On The evening of October 19, ProShares launched the first BITCOIN strategy futures ETF(ticker BITO) in the United States on the New York Stock Exchange (NYSE) after a rebuttal period from the SECURITIES and Exchange Commission (SEC), pushing bitcoin to a high of $66,000 per coin. Valkyrie Bitcoin Strategy's Bitcoin futures ETF was subsequently approved.

The rush to list continues. BlockFi Inc said on Nov. 8 that it has filed with the SEC to launch its Bitcoin ETF. BlockFi NB LLC, a joint venture between cryptolending service provider BlockFi and investment manager Neuberger Berman, filed to launch the 'BlockFi NB' Bitcoin ETF, offering direct exposure to bitcoin, according to BlockFi's SEC filing.

But the successful landing of two BITCOIN futures ETFs in the U.S. doesn't mean the SEC is opening up. On November 12, the SEC declined to approve VanEck's cash Bitcoin ETF because of concerns that it could violate securities rules due to market abuse. SEC Chairman Gary Gensler has said that while bitcoin futures ETFs are conducted on fully regulated exchanges, spot Bitcoin ETFs are not and are open to market abuse.

"We are obviously disappointed by the SEC's refusal to approve our spot Bitcoin ETF." "We continue to believe that investors should have access to direct physical bitcoin exposure through regulated investment products, not just Bitcoin futures ETFs," said Jan VanEck, VanEck's chief executive.

Jpmorgan strategists led by Nikolaos Panigirtzoglou said in an October 21 research note that bitcoin is a better inflation hedge than gold, as the U.S. consumer price index rose 6.2 percent in October from a year earlier, the biggest year-on-year rise since 1990. "This is the main reason for the current rally, which has triggered a shift from gold ETFs to bitcoin funds since September. This change in fund flows still supports the bullish outlook for Bitcoin through year-end."