The long-anticipated Bitcoin upgrade, Taproot, activates this weekend. It will enable developers to integrate new features to improve network security, scalability, and privacy, Coindesk wrote.
What will change?
For its digital signatures, Bitcoin has been using ECDSA, a cryptographic scheme where a user signs a transaction with their private key before they can send it somewhere else. With Taproot, the network will upgrade to Schnorr, which is faster and smaller than ECDSA.
What’s more, Schnorr signatures are linear, which is an additional advantage. It will increase Bitcoin’s transaction privacy by introducing more complex, but also lighter smart contracts with self-executing rules.
Analysts expect trading activity to pick up next week
Analysts such as Lukas Enzersdorfer-Konrad of Bitpanda believe trading activity will pick up after the Taproot upgrade. He commented:
Bulls may have some power left to push the market higher as a result of the [Taproot] upgrade.
Despite the potential Bitcoin price correction, traders are looking beyond bitcoin for additional profit opportunities. FxPro analyst Alex Kuptsikevich wrote:
Bitcoin’s chart has likely become too noisy to remain a reliable indicator of the crypto market, conceding that role to ether. If so, a break of this strong uptrend could prove to be the first signal of a correction.
Augmenting privacy
At the moment, Bitcoin’s transaction history is very public. Anyone can view any transaction ever sent using Mempool.space or another public block explorer. While this won’t change with Taproot, it will become possible to conceal details of smart contracts.
At the moment, Lightning Network transactions draw attention on the blockchain. Taproot will increase privacy by making them look just like any other transaction.
Improving scalability
Schnorr signatures can help reduce data volumes on the blockchain by combining multiple signatures into one. For example, this reduction in data size could boost scalability of a multi-signature scheme called MuSig2, which requires a number of signatures for a single transaction to go through.
What to expect after Taproot
Just over 50% of known Bitcoin nodes have showed support for the upgrade so far. The remaining continue to run old software. When Taproot activates, they will not be able to enforce the new rules unless they upgrade to Bitcoin Core 21.1.
No mining without the upgrade
If they haven’t upgraded to the new software, miners won’t be able to operate on the network. They won’t earn any new block rewards as a result. This is no fault of developers, who have made great effort to bring miners up to speed. More than 90% of miners state intentions to upgrade to Taproot.
While offering the possibility of more complicated use cases, developers will still have to create and implement those tools separately.
