Bitcoin's Taproot upgrade: Why it's a ‘game changer’ for the cryptocurrency
The Taproot upgrade on Bitcoin, the latest version to go live this week, is being considered an immensely important one in the life-cycle of the cryptocurrency, and certainly the most significant in four years – ever since it received the ‘SegWit’ or ‘Segregated Witness’ update back in 2017 (that effectively increased the number of transactions that could fit into a blockchain by pulling data on signatures from bitcoin transactions). As the crypto-reality takes hold of our markets, it is important to understand why the Taproot upgrade for Bitcoin – the world's first and most popular cryptocurrency – is being held with such significance in the world.
What is the Taproot upgrade for Bitcoin?
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.
Smart contracts are self-executing transactions whose results depend on pre-programmed inputs.
Why is the Taproot upgrade important for Bitcoin?
Bitcoin's Taproot upgrade is a major one that will enable the blockchain of the cryptocurrency 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.
According to cryptocurrency experts, Bitcoin will now have potentially broader applications, and that more flexible transaction types and lower costs are likely to support more development of DeFi (decentralised finance) and NFTs (non-fungible tokens) on Bitcoin.
How will Bitcoin profit from the Taproot upgrade?
With the new Taproot upgrade, the Bitcoin network will now be able to process more smart contracts, not unlike what Ethereum does. This is especially important since Bitcoin has historically not been able to process many smart contracts compared to what its competitor Ethereum does. With Taproot, the gap has narrowed and transactions, in general, have also become more data-efficient, optimising block capacity, and leading to lower transaction fees.
(With inputs from Reuters)