For the first time in four years, Bitcoin has been updated. This new update called Taproot will be released from November, and consists of an improvement in privacy and in the efficiency of transactions. With this new technology, the potential of smart contracts will be unlocked, a key feature of blockchain technology that is based on eliminating intermediaries from even the most complex operations.
This main novelty is based on the digital signatures of the users, since now every time a person makes a transaction, they leave a digital footprint. Right now, the cryptocurrency uses something called the “Elliptical Curve Digital Signature Algorithm,” which makes it only one user who can spend Bitcoins. With the Taproot update comes a new system called Schnorr signatures that makes multi-signature transactions unreadable. This means that the security will increase since the keys of the users will not be exposed.
Advantages of this new technology
This new enhanced signature system is also a first for smart contracts, as these can be used in almost any type of transaction. Smart contracts are the computer programs that cause agreements between two or more parties to be executed and enforced. Taproot makes smart contracts cheaper and smaller now and does not take up as much space within blockchain technology, which is an improvement with great potential.
Today, there are only two ways to create smart contracts: one is by following the central protocol and the other using the Lighting Network platform, which is a payment platform that is built on Bitcoin and that allows instant transactions to be carried out. . Smart contracts that are executed through this platform lead to faster and less expensive transactions. Therefore, a Bitcoin trade with current technology would be much more expensive than with Taproot later this year.
Bitcoin continues to evolve
“Smart contracts give the opportunity to build businesses and applications on the blockchain,” says Fred Thiel, CEO of the cryptocurrency specialist company Marathon Digital Holdings. The blockchain consists of a kind of structure in which data is stored that is practically impossible to falsify. Within this structure, digital transfers are made where information is distributed among different people and where this information is validated and anonymously recorded.
While programmers build smart contracts within the blockchain, there is the possibility that bitcoin will get into the world of decentralized finance (DeFi), which means that the middlemen in financial applications are eliminated.
This new system has taken a long time to arrive because many tests have been carried out during different periods of time, although it has later obtained the approval of the Bitcoin community and we will have to wait until almost the end of this year to start seeing it in operation. This may be a good time to invest in Bitcoins.