EXPLAINER-Bitcoin goes through major upgrade. Here is what it means

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NEW YORK, Nov 15 (Businesshala) – Bitcoin went through a major upgrade on Sunday that enables its blockchain to execute more complex transactions, potentially widening the use cases of the virtual currency and This makes it a bit more competitive with Ethereum for processing smart contracts.

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Smart contracts are self-executing transactions whose results depend on pre-programmed inputs.

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The enhancement, called Taproot, is the most significant change to the bitcoin protocol since the SegWit (Separate Witness) block capacity change in 2017.

Noel Acheson, Head of Market Insights at digital currency prime broker Genesis, said the potential applications of bitcoin have broadened with taproot.

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“More flexible transaction types and lower costs are likely to support greater development of DeFi (decentralized finance) and NFT (fungible tokens) on bitcoin, and could set the stage for a wave of technological advancements on the native crypto network,” he said. said. added.

Taproot’s activation has, in part, fueled a bitcoin rally, which pushed it to an all-time high of $69,000 on November 10th. In the past two months, bitcoin has gained almost 47%.

What is taproot?

Taproot Upgrade consists of three different upgrade offers. 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 allow bitcoin users to execute more complex smart contracts.

When was taproot officially activated?

Taproot became officially active on Block 709,632 on Sunday. Blockchain organizes transactions into batches or blocks. Each block can only contain a certain number of transactions.

Discussions on this particular upgrade began in early 2016, market participants said. The Taproot upgrade has been included in the bitcoin software since September.

What is its effect on bitcoin?

The biggest impact will be the bitcoin network’s ability to process more smart contracts, as does Ethereum.

Katherine Dowling, general counsel and chief compliance officer at digital asset investment firm Bitwise, said bitcoin has historically been much more limited in processing smart contracts than Ethereum.

“But, while bitcoin will never be as flexible as ethereum from a smart-contract standpoint, with Taproot this gap will now narrow. And this means we will see an increase in day-to-day applications for bitcoin,” he said. .

What are the other enhancements?

Taproot enhances privacy by obscuring what types of transactions are being executed. Schnorr signatures can make more complex transactions over the bitcoin protocol, such as those from wallets that require multiple signatures, look like any other transaction. It makes transactions more private and more secure.

Bitcoin transactions will also become more data-efficient, optimizing block capacity and reducing transaction fees, Genesis’ Acheson said.

What does TAPROOT mean to investors?

Dowling of Bitwise said that these massive upgrades pave the way for the next stage of innovation in the bitcoin network. He said the last major upgrade in 2017 helped launch the Lightning Network, which facilitated bitcoin payments much faster and cheaper than before.

She expects Taproot to lead a similar wave of innovation in bitcoin centered around smart contracts. (Reporting by Gertrude Chavez-Dreyfus; Editing by Alden Bentley and Chizu Nomiyama)

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