Contrary to popular belief, Bitcoin is not a finished product. It’s actually a working prototype. Because this blockchain network is still being refined, there was recently confirmation of an upgrade called ‘Taproot’.
Here’s everything you need to know about how this could improve the network and what it means for the cryptocurrency.
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Why does Bitcoin need an upgrade?
The Bitcoin network is continually developing. A major goal of the cryptocurrency is to become a perfect form of money.
However, perfection is a tall order. So from time to time, upgrades like Taproot are put into the coding to try and improve things like:
- Transaction speeds
That’s a lot of broad buzzwords, I know. But how Bitcoin works is quite complex and it’s an ongoing global collaborative project.
What is the Taproot upgrade?
This is the first major upgrade in around four years. The main goals are to improve transaction privacy and network efficiency.
Another major improvement is the potential to implement smart contracts onto the Bitcoin blockchain. Smart contracts are already available on the rival Ethereum network.
It basically means that two parties or organisations can work together securely without needing middlemen. Potentially, it could save people and companies a lot of money in the future.
This also opens the door for Bitcoin to be used for DeFi (decentralised finance). This involves building an alternative financial infrastructure on the blockchain that is more open and transparent than the current system.
How was the upgrade decided?
Improving the network can sometimes be difficult because it’s decentralised and no one controls it. This means that in order to make things better or do some tinkering, approval is needed by the majority of people active in the network.
This includes miners, developers, users, nodes, and businesses. Unless there is approval across the board, changes can’t be made. Imagine how hard it is trying to get a bunch of strangers to all decide on the same thing!
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When will the Bitcoin Taproot update take place?
If everything goes according to plan, the upgrade should take place in November 2021.
This is still a good few months away, and a lot can change in the cryptocurrency world in that time. So although this date is pencilled in, it’s not exactly set in stone.
The last upgrade, in 2017, was very divisive within the Bitcoin community. The Taproot update seems to have more universal support. This means it should go quite smoothly. We’ll have to wait and see.
What does the Taproot upgrade mean for investors?
Okay, so now that all the boring tech stuff is over, let’s take a look at how all of this could impact things for investors.
Right now, this upgrade doesn’t really change much. It promises to deliver a better Bitcoin further down the line. The idea is that it will allow more practical uses and generally just make it a bit more competitive with other cryptocurrencies.
This may potentially attract more investors and drive up the price. On the other hand, it might not create the buzz and interest needed for more buying. This is because it’s only making Bitcoin as useful as some other types of cryptocurrency already on the market.
Investing in Cryptocurrency is extremely high risk and complex. The Motley Fool has provided this article for the sole purpose of education and not to help you decide whether or not to invest in Cryptocurrency. Should you decide to invest in Cryptocurrency or make any other investment, you should always obtain appropriate financial advice and only invest what you can afford to lose.
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