Bitcoin’s code upgrade is about privacy
Bitcoin’s most significant code improvement in years won a key stamp of approval this weekend, reports CoinDesk’s Christie Harkin.
Why it matters: Over three years in the making, Taproot represents the ability for bitcoin to one day do more than be a store of value: think more nimble smart contracts (similar to those on Ethereum) and better usability.
The intrigue: The thing that stands out to industry observers is an added level of obfuscation that will make the protocol more private. In short, “mixed” bitcoin transactions will look the same as regular transactions on the blockchain.
- What’s bitcoin mixing? Bitcoin is an open ledger that is fairly easy to track. Bitcoin mixers bundle transactions in such a way that most sleuths are thrown off the trail of where an individual transaction is being sent. Depending on your view of privacy, mixers are favored by the prudent or the criminal.
Between the lines: That’s why the new Taproot upgrade slices two ways.
- It’s great if you think digital cash should function like actual cash: greenbacks don’t leave much of a trail for digital surveillance.
- It’s potentially worrisome if you view the pseudonymous traceability of bitcoin as an asset: Colonial Pipeline, anyone?
What to watch: Either way, it will be months until Taproot is alive in the wild. The upgrade will kick in when bitcoin reaches a specified “block height” in November, giving miners and anyone operating a node — from Coinbase to your next-door neighbor — ample opportunity to update their software.
- After that, developers will pick up the baton to integrate Taproot’s new features into products bitcoiners will actually use.
The bottom line: Is this a new Bitcoin? No, despite some new functionality (and potentially bitcoin-native decentralized finance, or DeFi) the original cryptocurrency will likely continue to do what it does best: Be an internet-native store of value that exists outside the purview of pesky central bankers.