Bitcoin has received an update on November 15 that allows its blockchain to execute more complex transactions, potentially allowing Etherium (which can process smart contracts) to compete by expanding its use of virtual currency.
As we described in the previous blog, smart contracts are self-operating transactions, the results of which depend on pre-programmed input data.
According to Reuters, this update (called Taproot) is the most significant change to the Bitcoin protocol since SegWit (2017). Segregated Witness has increased the volume of blocks, hence the number of transactions that fit in the block.
Noel Eixon, chief executive of Genesis Markets Insights, said in an interview with them that the future uses of Bitcoin have grown significantly with this add-on.
More convenient transaction types and lower prices according to Noel will facilitate the development of DeFi and NFTs in general; Which in itself will affect the wave of new innovations that will be added to the crypto-network.
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What is a Taproot?
The Taproot update consists of three different upgrade offers. However, the key factor is a new digital signature scheme called "Schnorr" that will make Bitcoin transactions more efficient and personal. It also allows network users to take advantage of more complex smart contracts.
When was Taproot officially launched?
Taproot was officially activated on Monday at block 709,632. Blockchain transactions are sorted into groups or blocks. Each block contains a certain number of transactions.
We have been hearing about this particular news since 2016, and Taproots software itself has been part of Bitcoin since September.
What impact does it have on Bitcoin?
Integrating more smart contracts like Etherium will be Taproots most influential change.
Historically Bitcoin has been much more restricted in terms of smart contracts than Etherium.
While this does not mean that Bitcoin now or ever will be as convenient as Etherium in this regard, Taproot will really make a difference.
Taproot additionally improves security by covering the type of transaction that is activated. Schnorr signatures facilitate more complex exchanges over the Bitcoin protocol. For example, wallets that require several signatures are no longer distinguished by this factor. Which, of course, makes the transactions more personal.
Network transactions will also become more economical by optimizing the volume of blocks which will lower exchange fees.
What does this mean for investors?
Bitwise Catherine Dowling said similar types of high-level improvements were operating in the phases of innovation. He stressed that a previous similar decision, in 2017, was followed by the Lightning network, which accelerated and made cheaper Bitcoin payments.
He thinks the Taproot upgrade will offer similar innovations in terms of smart contracts.