Bitcoin, the biggest cryptocurrency by value with a market capitalization of around $750 billion, has confirmed its first upgrade in four years.
Bitcoin miners—those who secure the bitcoin network and validate transactions in return for bitcoin tokens—approved the long-awaited upgrade, known as taproot, that’s due to take effect in November.
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Taproot, the most anticipated upgrade to the bitcoin protocol since segregated witness (SegWit) in 2017, is expected to improve bitcoin’s privacy and efficiency via a new signature scheme known as Schnorr that will replace bitcoin’s current elliptic curve digital signature algorithm (ECDSA).
“Taproot is a very important upgrade that allows new levels of development hitherto impossible on bitcoin’s blockchain and further cements bitcoin’s position as the most relevant of all cryptocurrencies,” says Quantum Economics’ bitcoin analyst Jason Deane, speaking via Telegram. “In our view, the potential impact is probably not yet fully understood by the wider community, but this is likely to be become clearer over time.”
Over the weekend, the required threshold for taproot support was crossed by bitcoin miners, locking in the “landmark” upgrade that signals the bitcoin network can evolve peacefully.
“[Taproot is] a big landmark in that it demonstrates a new activation pathway which is apparently functional,” says cryptocurrency venture capitalist Nic Carter, speaking via Twitter DM. “The technical change is important and warranted but to me, the most salient point is the fact that bitcoin governance and the upgrade process works.”
Bitcoin’s last upgrade came in the midst of bitcoin’s block size civil war that resulted in the creation of bitcoin cash, a fork of bitcoin that is better suited to smaller payments.
“Taproot adds important new functionality to the bitcoin protocol. But perhaps more important is that its adoption was nearly unanimous. In the wake of the block size war of 2017, the smooth taproot upgrade is a demonstration of strong consensus about the direction of base layer protocol development,” says Cory Klippsten, the chief executive of bitcoin-buying app Swan Bitcoin, speaking via Telegram.
“Nothing old breaks, everything new is entirely optional. That’s the bitcoin way. This is powerful functionality for many use cases, and also demonstrates that we should be able to add whatever is required in the future.”
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The bitcoin price has jumped over the weekend, though that’s largely been put down to Tesla billionaire Elon Musk confirming his electric car company plans to eventually resume bitcoin payments.
Bitcoin’s price remains far below its April peak of around $65,000 per bitcoin, currently trading just under $40,000 after a huge early 2021 rally came off the boil.
Meanwhile, other smaller cryptocurrencies—sometimes called altcoins—such as ethereum, cardano, Binance’s BNB and the meme-based dogecoin that seems to have been adopted by Elon Musk as his pet project, have all significantly outperformed the bitcoin price over the last few months.
Bitcoin is up around 300% over the last 12 months, while ethereum, the second-largest cryptocurrency after bitcoin, is up around 1,000%. Cardano and BNB, created by the crypto exchange Binance, have each added almost 2,000% over the last year as investors bet they may eventually win market share from ethereum.
Ethereum has soared over the last year as the popularity of decentralized finance (DeFi)—using cryptocurrency technology to recreate traditional bank products such as loans and insurance and built on top of ethereum’s blockchain—has surged.
Meanwhile, the runaway NFT (non-fungible token) craze that allows all manner of memes, digital artwork, tweets and YouTube videos to be sold via ethereum’s blockchain has further boosted the ethereum price.