A couple of weeks ago; you could simply describe bitcoin as ‘a sophisticated payment technology’ and still make a whole lot of sense. Very reasonable when you consider the fact that the bitcoin blockchain which powers the alpha cryptocurrency is built to simplify peer-to-peer financial transactions while employing some very clever tokenomics and economic principles. Bitcoin maxis would easily frown when you describe their beloved investment this way; but yeah, I’m no maxi.
This description categorizes bitcoin as a payment technology. Sorry, but you can shake that idea off now.
Hello Ethereum! Not so soon anyways…guess I got too stoned by the thought of what can be achieved with bitcoin following its latest upgrade. More private transactions, increased efficiency, and of course smart…
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In case you missed the news; at block 709,632 the bitcoin taproot upgrade went live. Bringing into life what has been described as the biggest bitcoin upgrade since its inception the Taproot upgrade is the bitcoin blockchain’s first upgrade in the last four years. Over five months of thorough testing and optimization, the Taproot finally grows!
And if you’re still wondering how big this is for bitcoin and cryptocurrency, it is HUGE.
In addition to the current “Elliptic Curve Digital Signature Algorithm” (ECDSA), the Taproot upgrade introduces the “Schnorr signatures”. ECDSA creates a signature from the private key that controls a bitcoin wallet and ensures that bitcoin can only be spent by the rightful owner. When used to sign multiple-signature transactions, the Schnorr signature algorithm adds a privacy layer to multi-signature transactions.
‘Privacy layer’ might sound too complicated for what the Schnorr signature actually does. The Schnorr signature combines the signatories of a multiple-signature transaction into one signature. The individual signatories in this transaction are a little bit more ‘hidden’ as the transaction is represented with only one signature.
In addition to improved privacy for multi-sig transactions, the Schnorr signature can be used to significantly reduce the size of multi-sig payments and other multi-sig-related transactions, for example, lightning channel transactions. It not only makes these transactions more private and secure; but trimming the size of the transactions’ data makes for more efficiency in execution.
Smart contracts? Arguably the most important feature of the Taproot upgrade…
I’d say the Schnorr Signature is the real game-changer. Currently, smart contracts can be created on bitcoin’s core protocol layer and also on the Lightning Network. The lightning network is a payment platform built on bitcoin, it improves bitcoin transaction speed and enables almost instant transactions. Smart contracts on the Lightning Network are notably faster and less costly when compared to smart contracts on the bitcoin core blockchain.
By compressing multiple signatures into a single signature and greatly reducing the size of multiple signature transactions, the Taproot upgrade is set to add a whole new level of efficiency and speed to smart contracts on the bitcoin core blockchain and the lightning network as well.
An efficient smart contract platform with privacy features for multi-sig transactions unlocks more possibilities for the bitcoin blockchain. In a blink, you could think about a handful of new applications this could power.
With a ‘Taproot’; the bitcoin blockchain is stronger than it has ever been. Technologically this is a huge step forward. Bitcoin to 100k EOY? Well, ‘effect on price’ is not a yardstick for measuring technological breakthroughs. If it was, bitcoin climbing past $0.1 million would be an understatement.
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