There is a common misconception out there that Bitcoin isn’t viable as a currency because it hasn’t been updated since 2009. This could not be further from the truth. Not only do miners constantly monitor the system, but they also vote on, and agree upon, upgrades for the blockchain. And these upgrades can be suggested or submitted by anyone, that is the beauty of the decentralized system, and if the miners agree, the changes will be programmed. And a large change has recently been approved and is scheduled to be released in February 2021.
What is Schnorr/Taproot?
The update which has been approved is referred to as the Schnorr/Taproot update. And this update covers three specific protocol updates which are being loaded into the Bitcoin blockchain as we speak. The “Schnorr” part of the update will add Schnorr signatures to the protocol, thus supporting mutli-sig transactions, or transfers which require multiple inputs in order to complete. The “Taproot” portion of the update is a protocol adjustment which allows more complicated transactions to take place. The third part of the update is not named in the name of the update, but it is a transcription update to BIP #342, changing the way in which the universal ledger is transcribed.
The uploading of this update is what is known as a software change or “soft-fork” to the Bitcoin blockchain and is the first one to be largely anticipated since the release of Segwit in 2016.
Why Does Bitcoin Need This Update?
The function of all of these three protocols together will allow two people to transact more privately than ever before. Currently, when you purchase or sell Bitcoin on the blockchain, because the ledger is public and anyone can see it, the US government has flagged certain coins making them worth less than others. For example, any transaction the US government suspects is used for illegal drugs or terrorism, those coins are flagged, and are then less valuable because any further transactions with them will be tracked. This has made people, especially those involved in high level finance, nervous that their coins could be seized by the US government, or they could be investigated, based on past locations and transactions of their coins.
The Schnorr/Taproot update is the great equalizer. Now, when person a, transacts with person b, a third, random transaction locator will be posted in the ledger. Meaning neither individual can be tied back to the transaction. Not only that, but complicated multi-layer transactions will only appear as a single transaction, making it so that certain transactions no longer stand out to any government entities which may be watching the ledger. This makes Bitcoin much more private than ever before, and gives high level traders a much better sense of security.
And as Bitcoin becomes more and more popular as a financial product, this type of security is being demanded by its high-level users. And in order for the coin to succeed as currency, it needs to be fungible, meaning each satoshi should have equal value, and that certain satoshis can’t be seen as bad because of past transactions. And the Schnorr/Taproot update is what will make this happen and truly level the playing field. Additionally, it returns full power of Bitcoin to the people.
When Is This Happening?
Although the update is scheduled to push to the public in 2021, it’s actually been in a beta, or testing, phase since 2019. Even though recent popularity spikes have brought Bitcoin to the front of most people’s mind, this update was actually drafted and proposed by Bitcoin developer Greg Maxwell in 2018. So, it may be new for most people, but this update has indeed been a long time coming. Bitcoin news sites report that the update has already been merged with Bitcoin’s coding library, and that all miners are waiting on is an agreed upon deploy date. The exact date has not yet been indicated, but most developers remain hopeful for a February release.
Whenever there is a fork to a major coin like Bitcoin, issues tend to arise because the update must be accepted by all miners otherwise a fork of the currency can occur. And like the Bitcoin and BitcoinCash hard fork in 2017, these aren’t always good for the future of the coin. In general, developers are less worried about the Schnorr/Taproot update than any update which has come before. And this is because when the protocol was voted upon before testing, over 90% of the miners voted in favor of the upgrade. This is such a large percent that the coders went ahead with developing the protocol without worrying about the rest.
But it also turns out, the developers have a couple different activation protocols up their sleeves, one of which would force miners to upgrade in order to keep mining on the Bitcoin protocol. The second one, which is the one which was used in past forks, basically leaves activation up to the miners thus leaving room for failure if even just a few miners refuse or don’t upgrade. It has not yet been announced which protocol will be implemented with the update, but it’s likely that the first protocol will be used, since so many miners approve of this update, it would be a poor choice to leave failure as a possibility because of a small amount of miners who don’t update (for the record 95% of miners must upgrade for the update to be successful). But using the first protocol which forces miners to update, also isn’t without its difficulties as many coders feel this is against the nature of Bitcoin itself, because a mandatory update day would make the developers too much like a centralized entity for their liking. As of January 13th, 2021, it had not yet been announced if the update would be forced on miners or if it will remain a choice.
What This Means For Bitcoin
Just like a number of other updates to the Bitcoin protocol, whether or not the update pushes through, Bitcoin will still be there. There is talk that if the taproot protocol is not widely accepted by the end of the year (or even a two-year period) that it will be considered a failure. But even if it does fail, Bitcoin is still a currency and still an investment, it just faces the possibility of losing its ability to become a widely used currency, as the fungibility issue are likely to grow in the coming years.
No matter how you look at it, this update is good both for the people, and the coin, so fingers crossed all the miners can agree, and Bitcoin users can look forward to a new sense of privacy in February 2021.
Bitcoin is a cryptocurrency, a form of electronic cash. It is a decentralized digital currency without a central bank or single administrator that can be sent from user-to-user on the peer-to-peer bitcoin network without the need for intermediaries.