The first bitcoin upgrade in four years has just been approved by miners around the world. It is a rare moment of consensus among stakeholders, and crypto experts tell CNBC it's a pretty big deal for the world's most popular cryptocurrency. The upgrade is called Taproot, and it's due to take effect in November. When it does, it will mean greater transaction privacy and efficiency – and crucially, it will unlock the potential for smart contracts, a key feature of its blockchain technology which eliminates middlemen from even the most complex transactions."Taproot matters, because it opens a breadth of opportunity for entrepreneurs interested in expanding bitcoin's utility," said Alyse Killeen, Founder and Managing Partner of bitcoin-focused venture firm Stillmark. Unlike bitcoin's 2017 upgrade – referred to as the "last civil war" because of the contentious ideological divide separating adherents – Taproot has near universal support, in part because these changes are fairly incremental improvements to the code. Bitcoin's makeover has to do with digital signatures, which you can think of as the fingerprint an individual leaves on every transaction they make. Right now, the cryptocurrency uses something called the "Elliptic Curve Digital Signature Algorithm," which is created from the private key which controls a bitcoin wallet and ensures that bitcoin can only be spent by the rightful owner. Taproot will switch over to something known as Schnorr signatures, which essentially makes multi-signature transactions unreadable, according to Alejandro De La Torre, Vice President at Hong Kong-headquartered major mining pool Poolin. In practice, that means greater privacy, because your keys won't have as much exposure on the chain. "You can kind of hide who you are a little bit better, which is good," said Brandon Arvanaghi, previously a security engineer at crypto exchange Gemini. It won't translate to greater anonymity for your individual bitcoin address on the public blockchain, but it will make simple transactions indistinguishable from those that are more complex and comprised of multiple signatures. These souped-up signatures are also a game changer for smart contracts, which are self-executing agreements that live on the blockchain. Smart contracts can theoretically be used for practically any kind of transaction, from paying your rent each month, to registering your vehicle. Taproot makes smart contracts cheaper and smaller, in terms of the space they take up on the blockchain. Killeen says that this enhanced functionality and efficiency presents "mind blowing potential."Currently, smart contracts can be created both on bitcoin's core protocol layer and on the Lightning Network, a payments platform built on bitcoin, which enables instant transactions. Smart contracts executed on the Lightning Network typically lead to faster and less costly transactions."Lightning transactions can be fractions of a penny...


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Article Link: https://www.cnbc.com/2021/06/12/bitcoin-taproot-upgrade-what-it-means.html


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