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Bitcoin Taproot upgrade improves the network as BTC price impact may be limited

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Bitcoin is set to undergo a major network upgrade, Taproot, in nearly two days, i.e., on Nov. 14 or 255 blocks later, as per data from Taproot.watch. This is the first significant upgrade since the Segregated Witness (SegWit), which eventually culminated in the development and launch of the Lightning Network in 2018. The original Taproot proposal was made by Bitcoin core contributor and former Blockstream chief training officer Gregory Maxwell on Jan 23, 2018.

While the previous SegWit upgrade was aimed to resolve transaction malleability and improve the scalability of the Bitcoin network, the Taproot upgrade is targeted to improve transaction efficiency, the privacy of the network, and its ability to support smart contract initiatives. The upgrade was set into motion only after attaining a 90% consensus among the Bitcoin mining nodes on June 12, as announced by Bitcoin developer Hampus Sjöberg on Twitter. Sjöberg also made the Taproot.watch website to track the updates for the Taproot upgrade.

Ben Caselin, head of research and strategy at AAX, a cryptocurrency exchange, told Cointelegraph, “The Taproot Upgrade coming to Bitcoin is among the most impactful changes to be implemented on the network. The upgrade brings smart contract functionality to the protocol, and it optimizes for cost efficiency and privacy.“

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He also noted that the smart contract functionality coming to Bitcoin is significant even though there are so many high-performing protocols that are functioning already, stating “we have to remember that Bitcoin is the only truly non-sovereign network that offers the highest degree of network security on the planet.”

MAST and Schnorr Signatures

The soft fork will introduce the Merkelized Abstract Syntax Tree (MAST). This tree will introduce a condition that will allow the sender and receiver of the transaction to sign off on a transaction together for settlement. Merkle trees are an established compact complex data structure that was invented by Ralph Merkle, one of the inventors of public-key cryptography.

Currently, Bitcoin uses the pay to script hash (P2SH) that ensures that only a hash of the script is going on-chain. Thus, when tokens are being spent, the underlying technology makes it necessary to show all the possible conditions which could’ve been fulfilled, including those that weren’t met in the transaction. The downside to this is that it is very data-heavy, which is unnecessary, and it’s not ideal for privacy as anyone on the blockchain can investigate which ways the funds could’ve been spent, the kind of wallet being used, and possibly more of such details.

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MAST ensures that the various conditions in which the funds can be spent are hashed individually and included in a Merkle Tree that will produce a Merkle root, which is a single hash. This ensures that only conditions which are met would need to be revealed, thus making the network more data-efficient than the previously used P2SH contracts.

Additionally, the Taproot upgrade will bring in the Schnorr Signature. This algorithm will allow users to aggregate multisigs into one for a single transaction, making it difficult to differentiate between regular transactions and multisig transactions. Essentially, these signatures hide if there is a MAST structure that existed from the token or transaction at any time at all.

Igneus Terrence, head of communications at Bybit, a cryptocurrency derivatives exchange, spoke with Cointelegraph on the specifics of this upgrade:

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“Using the trinity of Schnorr signatures, MAST and Tapscript, Taproot allows for less unnecessary data collection in Bitcoin network’s transaction outputs without sacrificing security. By virtue of less amount of data collected and transferred, the benefits for the end-users will be seen in better privacy, more efficiency, and lower transaction fees.”

Terrence also mentioned that the Taproot upgrade would have a compounding effect on the Lightning Network launched back in 2018. After this soft fork, simple, complex multisig and Lightning Network transactions will be treated equally on the network. This would unlock the true potential of the Lightning Network through increased efficiency and reduced discrimination on fungibility.

Marie Tatibouet, the chief marketing officer at Gate.io, spoke with Cointelegraph about the larger impact that the Lightning Network has had already, especially in El Salvador’s adoption of Bitcoin as legal tender. She said, “Strike — one of the most popular Lightning Network wallets — is responsible for powering El Salvador’s crypto ecosystem. In a three-month period between May and July 2021, the number of lightning network nodes jumped from 10,000 to 23,000. As things stand, it is projected that the Lightning Network could reach 700 million users by 2030.”

Even though the upgrade will allow the deployment of smart contracts and is the next logical upgrade for the Bitcoin network, it would be unrealistic to compete with the most utilized smart contract blockchain network, Ethereum, anytime soon. On this, Tatibouet said, “While it will take some time for proper contracts to function properly, the utility and user base it will bring in will be certainly impressive. However, don’t expect Bitcoin’s smart contract ecosystem to eclipse Ethereum’s any time soon.”

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Anto Bukov, the co-founder of 1inch Network, a decentralized cryptocurrency exchange, holds a more absolute view regarding smart contracts. He told Cointelegraph, “It was not designed for this purpose. Bitcoin is based on the UTXO model, which is not suitable for smart contracts. Cardano recently demonstrated this.”

Short-term price impact is limited

The days leading up to the upgrade have been interesting for Bitcoin as an investment asset as well. The token briefly hit an all-time high of $69,000 on Nov. 12 before crashing almost $7,000 to under the $63,000 price mark. The token currently trades just below the $64,000 as per data from CoinMarketCap. The asset currently has a market capitalization of over $1.2 trillion, holding over the coveted $1 trillion mark for nearly a week now.

However, the impact of this upgrade may already be priced into the asset’s current price. Bukov further spoke about the impact on the end-user. He said, “We note interesting technical improvements in Taproot, but it hardly will bring any user impact except for marketing.”

Caselin seemed to be more hopeful of the long-term price impact of this asset. He mentioned, “The immediate soft fork is priced in already. Anyone who understands and follows Bitcoin has been aware of Taproot and will have adjusted exposure accordingly. Nonetheless, since Bitcoin is still under its fair value and a further surge this month is widely expected, Taproot might provide the impetus. Nonetheless, in terms of its potential, Taproot has not been priced in at all.”

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Since the Taproot upgrade would reduce the transaction outputs on the network, it opens the possibility for the deployment of sophisticated smart contracts. One differentiator from other blockchain networks that already have advanced smart contract utilities like Ethereum, Solana, etc., is that Bitcoin’s monetary functions and superior network security could attract liquidity that stays in the network for long periods. This is an aspect that various decentralized finance (DeFi) protocols built on platforms like Ethereum currently struggle with, and are stepping into the DeFi 2.0 to address.

Caselin spoke more about the marketwide impact, saying, “Bitcoin might take some market share away from smart contract platforms; however, it is more likely that mainstream participants in DeFi will stick to Ethereum, Solana, and similar protocols. Bitcoin is better suited for the more serious endeavors — and serious capital.” 

Irrespective of the short-term price impact that the Taproot upgrade might or might not have on Bitcoin, it is evident that the Taproot upgrade, coming in as the first upgrade for the network in four years, is a major step for the network as it improves its fundamentals even further. Over the long term, this upgrade would drive value and could be seen as another step towards “hyperbitcoinization.”

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Miami Mayor, Strike’s Jack Mallers discuss their take on Bitcoin as inflationary hedge

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In early November, investment expert and business show host Anthony Pompliano asked which American politician would be the first to take their salary in Bitcoin.

In response, the Mayor of Miami city, Francis Suarez, expressed his willingness and asked for help. Several industry stakeholders, such as Coinbase’s Brian Armstrong and the Strike company offered their expertise.

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During an episode of Pompliano’s show, the investment exec interviewed both Suarez and Strike CEO Jack Mallers to learn more about getting paid in Bitcoin.

Rising prices, rising worries

Inflation was the word of the day for both interviewees, as Mallers and Suarez spoke about how they believed Bitcoin would serve as a hedge, or a new way of saving money. Mallers said he preferred to look at rising real estate prices and explained,

“If you, watching this, are not getting a 25% raise every single year, housing is getting more expensive than your earning income. So you are not making progress towards owning a home.”

Mallers also spoke about Strike’s feature that allowed users to be paid fully or partially in Bitcoin. In response, Suarez said,

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“…particularly people that don’t like Bitcoin, for whatever reason, they like to talk about the volatility, but they don’t talk about the year over year gains, which is crazy. I don’t understand how they can talk about one thing without the other, which is really the more relevant statistic, right?”

Suarez also suggested plans for residents to pay taxes in Bitcoin and for the government to hold BTC on its balance sheet. But regarding the link between Bitcoin adoption and inflation, he claimed,

“And with inflation certainly being under-reported – as we all know – you know, it’s [Bitcoin] an important hedge, and it’s becoming the base currency for many, many people.”

‘Tip’ of the iceberg

The Twitter-Strike API integration in September caused a buzz as crypto watchers worldwide wanted to know when the app would reach them. However, as of press time, the Strike website stated that only the United States (minus New York and Hawaii) and El Salvador could support the app.

Speaking about the Twitter tips feature, Mallers said,

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“And so we’re working with Twitter on how to make sure that can be outside of just our service – we don’t want to be the only ones supporting [it] – and how they can make it extensible to everyone in the world.”

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Bitcoin Traders Should Pay Close Attention to This Price Level Amid Crypto Market Pullback, Says On-Chain Analyst Will Clemente

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Popular on-chain analyst Will Clemente says he’s identified the new support level for Bitcoin (BTC) after the crypto market’s latest Covid-induced price drop.

Clemente tells his 430,000 Twitter followers that $53,000 is the price level to keep an eye on, and it wouldn’t surprise him to see the largest crypto asset by market cap tested at this support as he has yet to see any sizable flushes.

“Covid variant news isn’t ideal. Yet to see any sizable amount of [liquidations] or [open interest] flush, so a wick lower is very possible.

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However, STH (short-term holder) cost basis, or what I’ve been calling the ‘on-chain bull market support band,’ sits at $53,000.”

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Source: WClementeIII/Twitter

Bitcoin is exchanging hands at $54,350 at time of writing, an 8.6% decrease from its 24-hour high of $59,445.

In a new Blockware Solutions Market Intelligence Newsletter blog post, Clemente says spent output profit ratio (SOPR) data shows BTC investors are not yet ready to start selling their tokens at a loss, a signal that the support band could hold. The SOPR is an on-chain metric the indicates whether BTC holders are selling at a profit or a loss.

Clemente also says that there he’s seeing a pattern where strong Bitcoin holders are absorbing selling pressure from short-term holders.

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“There’s a clear bullish divergence between illiquid supply shock ratio and price right now. Illiquid supply shock compares liquid entities (sell 50% of the BTC they take in) and highly liquid entities (sell 75% of the coins they take in) to illiquid entities (hold 75% of the coins they take in). This means supply is moving to entities with little history of selling. If this does start to decline I will become bearish, but for now, it is continuing a steady incline.”

Clemente concludes that he’s still bullish on BTC despite the recent correction, but he’s ready to change his stance once he sees key on-chain metrics print clear bearish signals.

“In conclusion, if we are indeed in a bull market, the asymmetry is very skewed to the upside right now. Invalidation would be starting to close below $53,000 for several days, seeing SOPR breaking below and failing to retake 1 from the underside, as well as starting to see illiquid supply shock rolling over.”

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Bitcoin to Boost $98k in 4 Days, Analyst So Bullish

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  • Analyst bullish about Bitcoin.
  • Bitcoin remains the favorite crypto in the space.

The crypto world is back on its feet once again and is showing no sign of slowing down. In fact, the whole crypto space market cap amounts to over $2.5 trillion. Furthermore, Bitcoin, the king of crypto assets also continues to perform aggressively in the space. As a result, traders and crypto analysts in the crypto market cannot stop thinking about the future of Bitcoin.

This made Mr. Whale, CEO of DigiWhales, react in a tweet post:

The post created by Mr. Whale asked the reaction of the Twitter community about the tweet made by PlanB in Bitcoin hitting the skyrocketing price of $98k in 4 days. This tweet gathered different reactions from the crypto community, with some being bullish while others say it might take some time. But of course, in the end, the market will still decide the fate of all virtual assets in the space including Bitcoin. 

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On the other hand, Bitcoin remains to be the favorite cryptocurrency of investors around the world. Interestingly, El Salvador President Nayib Bukele announced that it would build a Bitcoin city where investors can experience zero tax. Indeed, this news brings joy to all Bitcoin fans and investors around the world.

At the time of writing, Bitcoin trades a bullish price of over $55k with a growth rate of over +200% in the past 12 months. In addition, BTC has a huge market capitalization of over $1 trillion and a 24-hour trading volume of almost $40 billion. This market position of the crypto enables Bitcoin to be the number one crypto asset in the market. 

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