Bitcoin went through a major upgrade that enables its blockchain to execute more complex transactions, potentially widening the virtual currency’s use cases and making it a little more competitive with Ethereum for processing smart contracts.

What is the new upgrade?

• The enhancement, called Taproot, is the most significant change to the bitcoin protocol since the SegWit (Segregated Witness) block capacity change in 2017.
• SegWit effectively increased the number of transactions that could fit into a block by pulling data on signatures from bitcoin transactions.
• Smart contracts are self-executing transactions whose results depend on pre-programmed inputs.

What is Taproot?

• The Taproot upgrade consists of three separate upgrade proposals.
• However, at its core, the upgrade introduces a new digital signature scheme called “Schnorr” that will help bitcoin transactions become more efficient and more private.
• Schnorr can also be leveraged to let bitcoin users execute more complex smart contracts.

When was Taproot officially activated?

• Taproot was officially activated on block 709,632.
• Blockchains settle transactions in batches or blocks.
• Each block can contain only a certain number of transactions.

What is its impact on Bitcoin?

• The biggest impact would be the bitcoin network’s ability to process more smart contracts, similar to what Ethereum does.
• Bitcoin has historically been much more limited in processing smart contracts compared with Ethereum.
• Taproot increases privacy by obscuring what type of transaction is being executed.

What are the other enhancements?

• The Schnorr signatures can make more complex transactions on the bitcoin protocol, such as those from wallets that require multiple signatures, look like just any other transaction.
• This makes transactions more private and more secure.
• Bitcoin transactions will also become more data-efficient, optimizing block capacity and leading to lower transaction fees.

What does Taproot mean for investors?

• Large-scale upgrades have paved the way for the next phase of innovation in the bitcoin network.
• The last major upgrade in 2017 helped launch the Lightning Network, which facilitated much faster and cheaper bitcoin payments than before.
• Taproot to lead to a similar wave of innovation in bitcoin centered around smart contracts.

Also read:

Cryptocurrency

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