Bitcoin Network Gears for the Taproot Upgrade this Week As BTC Price Hits All-Time High

09. Nov 2021 Posted by Akolkar B on News

On Monday, November 8, the world’s largest cryptocurrency Bitcoin (BTC) hit a new all-time high above $68,000 levels. Bitcoin has entered a new price discovery and is eyeing an immediate target of $70,000 and above.

The latest BTC price rally comes as the Bitcoin blockchain prepares for the Taproot upgrade ahead this week. This upgrade was formalized back in June 2021 when 90% of the Bitcoin network miners had approved of it.

Taproot is not a single update. Instead it is a combination of three Bitcoin Improvement Protocols (BIPs) — BIP 340, 341 and 342. The BIPs have been responsible for some of the big changes to the Bitcoin network like the 2017’s Segwit. This was the last big scalability upgrade to the Bitcoin network which facilitated the launch of the Lightning Network in the later years.

So what has the Taproot upgrade in store for us? Currently, the Bitcoin blockchain does have smart contracts on the platform but with limited to no use cases. However, unlike other smart contract platforms like Ethereum, Cardano, or Solana, using smart contracts on the Bitcoin blockchain increases total transaction fee and the size of data on the Bitcoin blockchain.

Taproot addresses this issue by moving from the existing Elliptic Curve Digital Signature Algorithm (ECDSA) to the Schnorr Signature Algorithm (SSA). With the SSA implementation, multiple transactions done to the Bitcoin wallet down; t need to appear separately.

All these transactions can be hashed under one transaction by assigning a unique key. This is very much helpful in streamlining various applications like creating Bitcoin based funds wherein transactions can happen from multiple parties to one wallet.

Furthermore, Taproot will lead to cheaper transactions on the Bitcoin blockchain. After the upgrade, when smart contracts are used on the Bitcoin blockchain, a system called Merklized Alternative Script Trees (MAST) will be activated.

Thus, all conditions placed on a transaction can be condensed into one script thereby taking up less data. This further signifies the use of smart contracts while increasing the total storage on the blockchain. Besides, lower fee will also lead to higher merchant adoption of the Bitcoin blockchain.

The Taproot upgrade can provide a gateway for Bitcoin to enter into the rapidly emerging market of decentralized finance (DeFi).