The Bitcoin network had a major update over the weekend in an effort to help improve the scalability and privacy of the original cryptocurrency.
The upgrade, called Taproot, is Bitcoin’s first upgrade since 2017 and has been in the pipes since its proposal in early 2018.
With Taproot comes two important changes to Bitcoin’s underlying code: the introduction of Merkelised Abstract Syntax Trees (MAST) and a replacement of the cryptography behind its signatures.
Combined, these changes simplify the way Bitcoin interacts with scripts built into its transactions and will make multi-signature transactions less identifiable on the blockchain.
Jonathon Miller, Managing Director of cryptocurrency exchange Kraken Australia, said the upgrade will improve scalability, make transactions more efficient, and help build in smart contract functionality.
“These enhancements are expected to be especially significant for the Lightning Network in supporting massive channels that were previously unfeasible,” he said.
“Bitcoin will now have the capability for more complex transactions, including more seamless DeFi transactions, and will offer users greater privacy.
"This upgrade is something the bitcoin community has been waiting a while for and the reaction to it has been a warm welcome.”
Schnorr Signatures will now underpin the way bitcoin transactions or process, replacing the Elliptic Curve Digital Signature Algorithm (ECDSA) that bitcoin was originally built with.
Because Schnorr Signatures allow signatures to be aggregated, transactions that involve multiple signatures will appear as a single transaction on the blockchain, taking up less data and hopefully improving its speed.
The introduction of MASTs bundles up transaction scripts to limit how much of a script gets revealed on the blockchain.
As with Schnorr Signatures, this change is designed to make transactions take up less space on each block while also making them more private.
Taproot should make it easier for coders to build in complex multi-signature transactions like smart contracts – the foundation of decentralised finance and a key point of differentiation between Bitcoin and other cryptocurrencies like Ethereum.
Taproot was taken up by the network with little fuss as over 90 per cent of miners had signalled they would move onto the soft fork back in June.
Markets reacted softly to the upgrade which won’t have major effects on the day-to-day use of bitcoin until it is taken up by exchanges, wallets are updated, and functions built-in.
The bitcoin price reached an all-time high of around $92,400 (US$68,000) last week and has dipped below $81,500 ($US60,000) in the days following the Taproot upgrade.