Bitcoin went through a major upgrade that enables its blockchain to execute more complex transactions, potentially widening the virtual currency’s use cases and making it a little more competitive with Ethereum for processing smart contracts.
Smart contracts are self-executing transactions whose results depend on pre-programmed inputs.
The enhancement, called Taproot, is the most significant change to the bitcoin protocol since the SegWit (Segregated Witness) block capacity change in 2017. SegWit effectively increased the amount of transactions that could fit into a block by pulling data on signatures from bitcoin transactions.
Noelle Acheson, head of market insights at Genesis, a digital currency prime broker, said bitcoin’s potential applications have become broader with Taproot.
“More flexible transaction types and lower costs are likely to support more development of DeFi (decentralized finance) and NFTs (non-fungible tokens) on bitcoin, and could set the stage for a wave of technological progress on the original crypto network,” she added.
The run-up to Taproot’s activation has spurred, in part, a rally in bitcoin, pushing it to an all-time high of $69,000 on November 10. Over the last two months, bitcoin has surged about 47%.
The Taproot upgrade consists of three separate upgrade proposals. However, at its core, the upgrade introduces a new digital signature scheme called “Schnorr” that will help bitcoin transactions become more efficient and more private. Schnorr can also be leveraged to let bitcoin users execute more complex smart contracts.