Bitcoin’s core protocol is set to implement its first major upgrade since 2017. Called Taproot, the protocol based on Ethereum’s central idea includes smart contract capability.

Some of the barriers to adopting Bitcoin for non-investment uses are the occasional high fees and long transaction times. Even if the current transaction fees for Bitcoin are about the lowest they have been all year (about $2), this is a considerable amount of money for potential users in low-income countries – plus the fees are often much higher. Solutions in the form of the Lightning Network scaling protocol and Taproot (the biggest bitcoin upgrade in years) are looming on the horizon. Here’s how they work:

Taproot is the upgrade to Bitcoin’s core protocol that was voted on and approved by the global mining community this week. Should everything go to plan, the protocol will go into effect in November. One of the main changes is the activation of limited smart contract functionality – a core feature of Ethereum that has spurred the development of everything from DeFi to NFTs. 

Taproot and the Lightning Network

Taproot works in part by tightly integrating the Lightning Network, a fast parallel blockchain that can process transactions much faster and cheaper than the main blockchain (fees are typically fractions of a cent). The new protocol has the potential to enable more efficient transaction fee markets, theoretically making transactions cheaper and enabling greater privacy. It also improves the privacy of “multi-signature” Bitcoin transactions, which are used by organisations for storing Bitcoins more securely (multi-signature Bitcoin addresses require the signatures of multiple participants to authorise the unlocking).

Statistics reveal that the Lightning Network is gaining momentum and the network is growing. Nodes in the network have more than doubled in the past year and the total number of BTC locked into Lightning recently reached a record 1,400, indicating growing interest and participation in this scaling solution.

By Ayoub Khirane