Top 2 Crypto’s Getting Big Upgrades
As the crypto market searches for a bottom, exciting upgrades for both BTC and ETH are just around the corner. With the potential for these upgrades to boost the market, let's jump in and understand what the upgrades are and why they are both significant steps in the right direction
The BTC update known as "Schnorr/Taproot" consists of three Bitcoin Improvement Proposals (BIPs), new code proposals to improve Bitcoin Core, the reference client used to run the Bitcoin protocol. The BIP #340 adds "Schnorr signatures", the BIP #341 adds "Taproot" and BIP #342 adds "Tapscript”.
The Taproot proposal builds on top of Schnorr signatures. The main function of Schnorr signatures is to make “multi-signature” (multisig) transactions, which require multiple signatures to be processed, and traditional, single signature transactions (called P2PKH, for ‘pay-to-public-key-hash’ transactions), look the same on the blockchain. The function of Taproot is to extend this approach to other, more complex sorts of transactions (called P2SH, for ‘pay-to-script-hash’ transactions) and also make them look like traditional P2PKH transactions.
The fundamental benefit of Schnorr signatures is that they allow for key and signature aggregation. This means that it becomes possible to combine different public keys into a new, single one.
The Schnoor/Taproot upgrade increases the fungibility and privacy of Bitcoin. For a currency to be 'fungible', all of its units need to be indistinguishable from any other unit. The US Dollar is fungible because any individual $1 note is worth the exact same and likewise gold, with an oz of gold in Australia the same as an oz of gold in the Timbuctoo. Currently, because transactions are publicly broadcasted on the blockchain, and because different types of transactions have different digital fingerprints, it is fairly easy to obtain identifying information about specific transactions. Being able to identify the past use of certain coins can 'taint' them and make them less valuable than 'clean' coins. This is a significant threat to Bitcoin's fungibility and its prospects as a currency. With Schnorr signatures, and even more with Taproot, all transactions appear to be of the same kind on the blockchain. It renders it much harder to know if a certain transaction was a one-to-one payment or a complex transaction, involving multiple signatures, time-based conditions, or the Lightning network.
The upgrade also benefits two other groups: Bitcoin developers and crypto exchanges. Bitcoin currently uses Elliptic Curve Digital Signature Algorithm (ECDSA) signatures, which usually weigh around 72 bytes, while Schnorr signatures weigh 64 bytes. This means that the upgrade will already yield an 11-12% gain in efficiency. This efficiency gain is then compounded by the fact that Schnorr signatures allow for signature aggregation.
Schnorr/Taproot additionally increases the privacy of Bitcoin. By analysing a multisig transaction, one can also identify the specific multisig set-up that was used, the ways the success conditions of a certain smart contract have been met and the type of wallet that was used. Wrapping up all of this information is a great privacy gain for Bitcoin users - the upgrade doesn't benefit only the average user. The gain in flexibility and efficiency will help scale the different endeavours to bring DeFi features to Bitcoin.
Bitcoin's last upgrade, Segregated Witness (Segwit), was in 2017 and was quite controversial, to say the least. In fact, it was so bad that it has been referred to as the "last civil war." Taproot, however, has near-universal support. More than 90% of all blocks that will be mined in the current period have signalled support for the upgrade signalling a good step in the Bitcoin community with the majority all working towards the same goal. The Schnorr/Taproot upgrade is expected to come into effect in November.
The second-largest crypto by market cap — Ethereum, set off its London update recently.
This upgrade comes with the much-awaited Ethereum Improvement Proposal (EIP) 1559. The testnet launch will be the first of many other launches. The deployment of the London upgrade will next appear in Ethereum's testnet launches, which occur weekly.
The testnet launches are a necessity to Ethereum's plans of having a fully scalable network — Ethereum 2.0. These steps are a part of the network's roadmap. Notably, the testnets will allow the execution of a Proof-of-Stake (PoS) consensus which is much more environmentally friendly given it doesn’t require the power that Bitcoin’s Proof of Work (PoW) protocol.
In particular, the London upgrade will bring 4 other EIPs that will all make their debut on the testnets. These EIPs include — EIP-3198, EIP-3541, and EIP-3554. EIP-1559 is what has caught the interest of the crypto community.
The proposal offers a transaction pricing mechanism that will bring a fixed network fee per block. This will then be burned and allow a dynamic expansion and contradiction of block sizes. This will help deal with Ethereum's congestion issue. We will also see Ethereum become deflationary and hence build on its intrinsic value properties.
The promise of a scalable network with Ethereum 2.0 has been a long-time wish for most users on the network. This wish is getting closer every day as Ethereum 2.0 launches its phases.
The crypto market is also expecting more from the crypto as the days go by, and the Eth2.0 upgrade is needed more than ever - even when the prices are down.
Notable figures in the industry believe that Ethereum will rise further. This is because they believe that the Ethereum network is home to many promising projects.
Scalability becomes the key for Ethereum's success and it is certainly moving in the right direction.