It's scheduled for November 14th, one of the most important updates in Bitcoin history. Taproot, which promises to be the biggest BTC upgrade since the segwit, which took place in 2017, has three main objectives: to increase efficiency in data storage, through a change in the transaction structure; extend blockchain flexibility by implementing some smart contract formats; and increasing custody security through a dual transaction validation model.
According to Orlando Telles, founding partner and research director at Mercury Crypto, the newest update will allow the increase in the number of applications on the network. Until then, Bitcoin is not associated with smart contract narratives, as its current blockchain format does not have this functionality. However, Telles emphasizes that the possibility of programming transactions in Bitcoin may enable new applications, adding value to the asset.
Taproot will add, through Discreet Log Contracts (DLCs), a functionality that will allow the usability of this format. “This process expands the possibility of applications of scalability solutions, such as Lightning Network and safer escrow models, such as the escrow format with multiple validations (multi-signature wallets), as well as other applications linked to the asset that can add much more value to it”, explains the specialist.
Storing data on a blockchain has always been very complex, as as demand increases, more data is stored by validators on that network. With Bitcoin, this problem can be seen with the drop in the number of nodes, which have a complete copy of the asset's blockchain, which results in a risk in terms of network centralization, which in turn compromises security.
In this sense, Telles points out that the new transaction record format implemented by Taproot (Schnorr signatures) will reduce the need for data to record a transaction, generating a data efficiency of 11% on every transaction recorded on the blockchain. “This will make the blockchain easier for nodes to store their data,” he says.
The Taproot update will also implement some technical changes that will make the wallets with multiple validation (multi-signature wallet) easier and more private. This wallet format has shown a growth of 55% since 2018 on the Bitcoin network, according to data from Coindesk, however, its current complexity has not allowed this expansion to continue. “With the update, there are expectations for this number to grow again, given the facilitation of the process. This movement, as a result, can make BTC simpler to be held in safe custody”, he highlights.
As for the challenges of the new update, Telles points to the complexity of the information disclosed by the developers. For the expert, Taproot has been described in a very technical way for the community, which, eventually, can be a barrier to the adoption of the new features of the asset by the general public.
Furthermore, the delay in proposing a major update, as the last relevance upgrade took place four years ago, can also be interpreted negatively. This aspect even divides opinions among analysts, as for some this delay is a sign of caution and assertiveness on the part of developers. As for Telles, the cryptocurrency market is based on technology and one of the great values of assets is their ability to evolve.
The expert also points out that Bitcoin is a technology and, unlike other stores of value, such as gold, it has the ability to evolve over time, increasing its value and improving user experience. “If Taproot becomes a widely used upgrade in a short time, it will be a very positive fundamentalist signal for Bitcoin. It will reinforce its efficient store of value narrative while also impacting on decentralization, data efficiency and improvement in the asset custody format”, he adds.
About Mercurius Crypto
Mercurius Crypto is a research house in cryptoactives with a strong presence in social networks, which aims to disseminate knowledge about cryptocurrencies. The company also has Mercurius PRO, an education platform in crypto exclusively for subscribers. More information on the website, Instagram, YouTube and Telegram.