Crypto Long & Short: Why Bitcoins Taproot Upgrade Matters

Monday 10 May 2021, 7:29 AM AEST - 1 month ago

You might have noticed some green squares floating around Twitter. Like the laser eyes, they are part of the insider signaling that creates a sense of cause and belonging. Unlike the laser eyes, they are not directly about the price – they signal support for the proposed Taproot upgrade for the Bitcoin network.

Why is this important? Its not just the benefits the upgrade brings, which are significant. Taproot is important because it reminds us of what Bitcoin is.

The good stuff

Before we dive into why this matters, lets look at some of the main benefits of the proposed upgrade:

  1. Increased privacy. This does not refer to Bitcoin addresses or enhanced anonymity; it refers to types of transactions. Taproot will make complex transactions, such as those requiring multiple signatures or those with delayed release, indistinguishable from simple transactions in terms of on-chain footprint.
  2. Lower fees. The data size of complex Bitcoin transactions will be reduced, which will lead to lower transaction costs.
  3. More flexibility. A new type of signature will enhance smart contract functionality in Bitcoin, making it easier and cheaper for users to set more complicated conditions for a transaction.
  4. Lightning boost. Taproot will make transactions on the lightning network cheaper, more flexible and more private. The lightning network is a layer 2 solution that enables faster and more scalable payments that periodically anchor in aggregate form to the Bitcoin blockchain, offering eventual Bitcoin security while amplifying speed and potential throughput.

A meaningful step

With all of the above, Taproot is the most significant upgrade to the Bitcoin network since the block size increase of 2017. The relative infrequency of Bitcoin upgrades highlights one of its main features: it is robust.

Making any amendments to Bitcoin is hard. There is no one in charge who can decide what changes get pushed through. And achieving consensus among such a diverse and d ...

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