Bitcoin is gaining more and more privacy features as concerns about cryptocurrency usage have increased in recent years Ransomware attacks.
The most significant update in four years for the computer software on which the world’s largest digital token is based was approved last weekend with little fanfare. In the past few years, fights between the so-called miners who operate the network have been called Civil war and led to offshoots like Bitcoin Cash.
While the most important advancement is making the network easier to use for certain large embedded applications called smart contracts, the so-called taproot update could also enable more people to use privacy wallets and services that make it harder to find out who is who paid. This could improve the anonymity traits valued by advocates of the currency, which law enforcement officials say are often used for illegal purposes. The US recently linked Cyberattacks against Colonial Pipeline Co. and meat producers JBS SA to groups in Russia who have used the cryptocurrency.
“Things will have fewer fingerprints – whichever use case or what wallet they are,” said Adam Back, chief executive officer of crypto service developer Blockstream, who helped Taproot with the programming, in an interview.
Proponents of Bitcoin, long calling the stigma of illicit use as exaggerated, said the changes could improve the way payments are sent to hundreds of people and how crypto-derivatives or bets are made on the network.
Today, the vast majority of smart contract applications are built elsewhere, on networks like Ethereum. Taproot won’t quite make the Bitcoin network a direct competitor as Ethereum has more developer activities and features and is easier to use. But it’s a step in that direction and could make Bitcoin more attractive to more users and developers.
“It could, in principle, allow them to do practical things that are too big today or complicated programs that become expensive,” said Back. “This would allow them to be used more widely.”
The exact new applications that Taproot will activate may take a while.
“It will honestly be years before developers figure out how to implement these new types of transactions,” said Nic Carter, general partner at Castle Island Ventures. “But there is definitely scope for creativity. I definitely see it as a driver as it proves that Bitcoin can still innovate and update itself. “
The Taproot update was approved last weekend by the majority of miners whose computers verify transactions and are awarded Bitcoin. It will take place in November.
“We of course support anything that will drive demand for new applications from Bitcoin and the Bitcoin network,” said Fred Thiel, CEO of Marathon Digital Holdings, a Bitcoin miner who advocates the upgrade. “This will ensure the long-term viability of the Bitcoin network and mining.”
Taproot will be a soft fork, which means the upgrade will be compatible with previous versions of the software.
An important feature is the so-called aggregated public key MultiSignature that effectively hides some of the complexities of a transaction sent to the Bitcoin network. Not only does it provide more privacy for transactions, it also enables more cost-effective transactions by reducing the amount of data to be recorded in the blockchain.
Leading blockchain investigation services like Chainalysis and Elliptic said they should still be able to figure out usage.
“Taproot has little impact on bitcoin’s traceability,” said Tom Robinson, co-founder of Elliptic. “However, there is a push to introduce other privacy features into Bitcoin, which would make it much more difficult to track down criminal funds. I believe Bitcoin has grown in part in recent years because its traceability has allayed regulatory concerns about its illegal use. “
The lower fees could also potentially give a boost to efforts like RSK and Stacks, which make it easier for developers to build decentralized applications or dapps for Bitcoin – such as coins.