Tall trees require deep roots
Views expressed in the article below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
Slowly but surely (with accompanying whiplashes of volatility) BTC has continued its ascent to the hallowed lands above the $70k stratosphere. After finally grazing the auspicious $69k mark, a fresh news cycle sensationalizing Evergrande’s impending default conveniently sparked a slew of cascading liquidations down to $63k, with $533m in longs evaporated on Thursday. If you listen closely enough, you can almost hear the whales splashing their whims and gobbling their gains. It’s important to remember that as price increases quickly, volatility tends to also gain momentum, possibly by magnitudes. In times like these, spot trading is undeniably the safest way to weather the storms we must overcome on the road to $100k BTC.
With the rampant euphoria of recent weeks, a major upgrade to the Bitcoin network has possibly been given less attention than it truly deserves.
Introducing Taproot
Bitcoin has undergone several forks since its inception, resulting in the creation of new blockchains. Most prominently in recent memory was the SegWit upgrade in 2017 to accommodate larger block sizes, which gave rise to Bitcoin Cash (BCH), and in turn Craig Wright’s infamous Bitcoin Satoshi’s Vision (BSV) via hard forks.
Bitcoin forks since inception
Taproot is a soft fork, analogous to an upgrade to a blockchain, rather than a contentious split into different chains. Taproot has been built to optimize the BTC network for increased scalability, privacy, and perhaps most excitingly, smart contract functionality. The upgrade will be coupled with the introduction of Schnorr signatures, which allow for increased privacy by using a new address format that masks the various types of transactions conducted on the network. For example, complex multi-sig transactions and those conducted on Lightning Network, which are currently easily identifiable, will appear indistinguishable from simple sends. While this in no way makes BTC a privacy coin, it goes a long way in bolstering privacy and reducing transaction-type discrimination on the network.
Additionally, Taproot’s use of Schnorr signatures improves efficiency and lowers fees across the network, as any transaction conducted between Taproot-supported wallets will incur similar fees, regardless of the transaction’s complexity.
The implications of this impartiality are far-reaching, as non-discrimination between transaction types allows Bitcoin to become a more robust settlement infrastructure as the wider community transitions to using Taproot.
Arcane Research
Smart Contracts
Smart contracts enable the creation of complex products on a blockchain, ranging from token creation to DeFi and much more. As it stands, Ethereum remains the smart contract king, having developed this functionality in 2015. With Taproot’s deployment, developers will be able to build sophisticated smart contracts and Layer-2 protocols directly on top of Bitcoin, which remains by far the most secure network on the planet due its expansive decentralization and therefore heightened resistance to 51% attacks.
Final thoughts
Taproot is slated to go live on 14 November, following 90% approval by miners on the Bitcoin network. While the extent of the upgrade’s impact remains to be seen, it’s safe to assume that its activation will usher in a fresh era for Bitcoin development.
With rampant innovation only increasing in velocity, and BTC adoption growing in exponential strides, one thing seems increasingly inevitable in this author’s view – the future will be written in sats.