Over the years, the Bitcoin protocol has seen numerous improvements introduced through a process known as BIP (Bitcoin Improvement Proposal). A BIP is an official proposal that anyone in the Bitcoin community can submit. After careful evaluation and discussion, if the proposal receives enough support, it can be implemented in the protocol. Proposals that directly modify the protocol can be implemented in two ways: Soft Fork or Hard Fork. The main difference between these two is that Soft Fork maintains compatibility with previous versions, allowing nodes with different software to communicate with each other. An Hard Fork, however, splits the network into two distinct blockchains, creating two different tokens.
An example of a Soft Fork is the 2017 SegWit update, which was introduced after intense debate within the community. This update aimed to improve transaction flow on the Bitcoin network. Interestingly, the first cryptocurrency to adopt SegWit wasn’t Bitcoin, but Litecoin.
SegWit reduces the weight of transactions by separating them into two parts: one containing the addresses of the sender and the recipient, and the other containing the “witness” data, which includes the transaction signatures. By removing this data from the main block, SegWit allows more transactions to fit into a single block, thereby increasing the capacity of the Bitcoin network. Additionally, SegWit introduced the concept of “weight,” measured in weight units (WU), which determines how much space a transaction occupies within a block. The formula used to calculate the weight is as follows:
(Transaction size – Witness data) * 3 + Transaction size.
This system rewards transactions that use less space by reducing the fees required to be paid to the network, thereby encouraging the adoption of SegWit.
In November 2021, another significant update called Taproot was implemented on the Bitcoin network. Taproot comprises three proposals: BIP-Schnorr, BIP-Taproot, and BIP-Tapscript. BIP-Schnorr introduces “Schnorr signatures,” which are more secure and space- and time-efficient than previous signatures, allowing multiple signatures to be aggregated into one. BIP-Taproot uses a technique called “MAST” to commit less data from smart contracts to the blockchain while also preserving greater privacy. BIP-Tapscript updates the scripting language for transactions, allowing for future improvements, greater privacy, scalability, and security on the Bitcoin network.
In conclusion, updates like SegWit and Taproot have significantly improved the efficiency, security, and scalability of the Bitcoin network, continuously making the protocol more flexible and adaptable to the needs of the community and the cryptocurrency market.