It won’t be long before the long-awaited Taproot enters the Bitcoin network. The updates have been in the software for some time, but are activated from block 709.632 for nodes running the latest version of the software. Four years after Segregated Witness went live, which enables the Lightning Network in its current form, we are now facing the next major update for Bitcoin.
As a result of several changes to the Lightning Network’s rules and practices, we are being asked to review our rules for the next several weeks. The decision to use the Lightning Network will affect Bitcoin and other blockchain projects for many years to come.
Please allow me to address the issue, and specifically the discussion of how you might use the Lightning Network. I do not know how you decide how many transactions you might put in a transaction log (both for your own use as well as the blockchain’s) without being able to review the transaction log on both the network and blockchain itself. Additionally, I do not know if you might go ahead and perform some other transactions, but by design on the network. As such, I am simply calling for your participation. You will get a small percentage of your block and will receive the full 50% of the fee.
We would all like to help. So let’s get back to our topic of ideas and the development strategy of Bitcoin, and not just for the sake of discussion of how new technologies could contribute to our success in an already competitive world.
So what exactly happened with the initial development of Bitcoin and the Lightning Network at the end of 2019? What happened during this period?
That there is a total of four years between Taproot and Segregated Witness shows how careful one is about the software of Bitcoin. Updates to the protocol are rare and have to jump through a huge number of hoops to eventually become ingrained. Security and patience are two core values that describe Bitcoin well. Nothing must go wrong, because there is a lot at stake. Time to take a closer look at Taproot to see what extra opportunities this will bring us.
A new way to sign transactions
The first important additional option that Taproot brings are so-called Schnorr signatures. With this new way of drawing, transactions become smaller. In the current format of ECDSA signatures, signing a transaction costs about 72 bytes. Schnorr signatures, on the other hand, only cost 64 bytes per signature, which is an improvement of roughly 12 percent compared to the current method.
This has the effect that Schnorr signatures reduces transaction costs and relieves the burden on the blockchain. After all, we need to write less data on the network for a transaction. That’s a nice efficiency boost for Bitcoin, but the real value of Schnorr lies in the validation of the data.
In the current format, a Bitcoin node when it receives a block must validate each individual transaction and signature, and that requires relatively much effort from a computer. Signatures created with Schnorr can be merged and validated with whole loads at the same time. The more Schnorr signatures we use for transactions, the less we rely on the computing power in the network. Which of course benefits the scalability of Bitcoin.
For example, using Schnorr’s signatures it is possible to obtain a much higher level of hash power than by using a low-power CPU.
This has been demonstrated at various addresses, so we wanted to try to use it for the initial test. However, if we try our own Schnorr signatures, we end up with a much higher hash power, compared to using a full chain with only the key of $Schnorr. To verify on this basis, we would like to check that the hashes against the main chain are not just the two with the $Schnorr signatures, but also against the two other addresses that don’t accept the key $Schnorr. The results of the test will depend on several factors, most importantly how complex the key is (e.g. the key signature is 1, the address of the address that accepts $Schnorr is one, the size of the key is one, and so on).
In this test we will first examine signatures with higher hashes. We do this by first checking that the keys for $Schnorr are completely well-composed, but we can also see whether signatures with such signatures would be very expensive for a full chain.
In addition, the implementation of Schnorr is a great victory for people who value their privacy. For example, the way Schnorr works makes it impossible to distinguish a normal bitcoin transaction and opening a channel in the Lightning Network. Something that is currently not possible with ECDSA signature.
Taproot is a victory for the scalability and usability of bitcoin
With the long-awaited introduction of Taproot, we are moving forward on several fronts. Bitcoin transactions become more efficient and with more privacy we can send more complex transactions to the network. What you probably didn’t know is that in theory a transaction also has a limit of 100 kilobytes. Miners can in principle add a larger transaction to their blocks, but nodes in the network are set so that they do not pass transactions greater than 100 kilobytes to miners.
For example, if you send an email and its response is 1,000 times slower than its response time of 1,000 times, it’s because it’s sending emails with 1 million bytes of data at once. The difference would make this an efficient currency in which every transaction you send would have a 1,000x multiplier.
For Ethereum, however, this means that to create better alternatives to Bitcoin, we’re going to have to pay a huge share of our fees. With our initial investment, we will have to earn in excess of $1 billion. This doesn’t mean that we can’t use Ethereum’s price to move Bitcoin, but in the long run any price move will have to be profitable. By the time we actually invest in Ethereum, we may have taken a 1,000x increase in market capitalization. That’s why we’ll have to reduce our capital over time. For now, the only way we can reduce our capital is by doing certain things in Ethereum. The most common are scaling the block size to allow greater transactions. A second most common method for scaling Ethereum was by creating a second large blockchain.
We’re already scaling more with each new block it fills the Ethereum network. We’ll add more transactions to allow more transactions.
Taproot makes bitcoin transactions more efficient in multiple ways, so there is more room for additional complexity in transactions. In other words, the limit of 100 kilobytes can be used more efficiently, allowing for things that were unthinkable before Taproot was introduced.
All this is to say, there is a tremendous amount of work going on in this field, with both academia and the public at major points putting money into it and the wider public, as well, on the development of technology which, with the growth of these technologies across the world, the rate of growth of those technologies has even increased.
We have developed a broad range of technologies across an array of data sources, ranging from the consumer electronic products (the data they are stored on), to the digital information technology (the data used during the transmission of the data) to the industrial information technology (including the information about those products that are used in their production). The use of these technologies in this process is something that has to be examined carefully by industry, government and others. But we also need to be sensitive to the nature of the business model involved so that we can do so much to avoid being misled.
In addition, we have long sought to identify the patterns of changes occurring in the production process of information technology as well, in order to better distinguish between different types of information technology used in commercial systems and those to which technology is associated. We would like to draw on that insight, as well, to ensure data processing can be made more economical, enabling all sectors of analysis to be more sensitive to information.
What exactly this will bring us is not yet clear, but if we have learned anything in recent years, it is that we should not underestimate the inventiveness of bitcoiners. The chance is more than present that Taproot, for example, is the starting signal for additional possibilities with smart contract on Bitcoin. A lot to be excited about. We are curious what Taproot will bring us in the coming years.
On the other hand, it makes sense for us to focus on the real Bitcoin. What kind of ecosystem is Bitcoin looking at so far? What will the future hold for blockchain in the near term?
Yes, the main area where we see interest is where it’s going to get really interesting. We are not seeing really compelling reasons but the real question is what kind of blockchain infrastructure is still going to get really interesting so let’s wait on that.
A lot of our focus is now focused on the idea of secure, private, and public blockchains. It’s not just that we want more options for blockchains, we want more blockchain innovation to happen when the world shifts to something that can really scale and scale fast.
You have to understand that there’s quite a bit of debate on this topic within the Bitcoin community, particularly with regard to a lot of the ideas being expressed about privacy and privacy-based cryptocurrency. Is there an end to this debate?
It’s really difficult to quantify this concept since privacy-based blockchain platforms are much too complex for a lot of us of that sort: privacy based cryptocurrencies are great at their core if you’re in the privacy space, but if [any cryptocurrency is] truly privacy-based they’re not very interesting to me.