5 Bitcoin Network Developments You Should Know About
Bitcoin technology has evolved significantly since its launch. Bitcoin is constantly evolving as the community strives to improve privacy and scalability. The original Bitcoin client, Bitcoin Core, is currently at version 23.0, indicating that a lot has been happening behind the scenes – there were a total of 37 Github releases at the time of writing.
Read on to learn about five Bitcoin technology developments aimed at helping Bitcoin achieve its full potential.
Top Bitcoin Technology Developments You Should Know About
Over the years, many Bitcoin Improvement Proposals (BIPs) have been presented to the community suggesting various ways to improve the network. Some have been approved and implemented, while others have been rejected. Bitcoin Core developers and more than 800 contributors participate in the development process of Bitcoin.
Here is a list of the top five Bitcoin technology improvements you should know about.
SegWit
Segregated Witness (SegWit) is a Bitcoin upgrade that was implemented in August 2017 through a soft fork. It addresses transaction malleability and increases validation speed by storing multiple transactions in a block. SegWit paved the way for the Lightning Network and the Taproot upgrade.
SegWit was proposed in 2015 by Bitcoin developer Peter Wuille. The SegWit upgrade sparked a “war” in the Bitcoin community before it was activated. Community members who opposed this change gave the Bitcoin blockchain to establish Bitcoin Cash (BCH).
SegWit takes the “witness data” out of a block, minimizing the transaction size and creating more space in a block. Therefore, blocks can contain approximately 2,700 transactions after SegWit as opposed to an estimated 1,650 transactions before the upgrade. Witness data is the other part of a transaction that includes transaction signatures. The first part of the transaction contains the wallet addresses of the sender and receiver.
SegWit also fixed transaction malleability, a term that refers to the possibility that part of a transaction can be changed “after a transaction is signed without invalidating the signature.” The second phase of this upgrade, SegWit2x, was not initiated because it was rejected. The goal of SegWit2x was to increase the block size to 2MB. SegWit adoption skyrocketed in 2021 and has been rising steadily ever since. At the time of writing, SegWit adoption at transaction level was 84%.
The lightning network
The Lightning Network (LN) is a layer-2 payment protocol built on top of the Bitcoin blockchain. It was proposed by researchers Thaddeus Dryja and Joseph Poon in 2015. Their paper was based on Satoshi Nakamoto’s ideas about payment channels and the forum discussions he had about them. In 2016, Dryja and Poon built Lightning Labs, a company that would focus on the development of LN. They released the beta version of LN in 2018.
The Lightning Network uses smart contract functionality, which enables users to make instant off-chain microtransactions. Payments take place in payment channels (multi-signature contracts), so that two parties can trade with each other. LN offers remarkably low fees because transactions and settlements happen off-chain. It can potentially handle billions of transactions per second, thus solving Bitcoin’s scalability problem.
However, the Lightning Network is not perfect. It has issues that are continuously being resolved. Some of the solutions that are in progress are route blinds and trampoline loops. Route blinding, for example, aims to improve the recipient’s privacy.
LN’s capacity has grown in 2022 despite the bear market. It passed 5000 BTC in October 2022. This is the cumulative capacity that all LN nodes have. Companies are also investing a lot of money in the Lightning Network. For example, Strike, a digital payment provider from LN, raised $80 million in a fundraising round led by Ten31.
Tapioca
Taproot is a Bitcoin upgrade that was distributed in November 2021 via a soft fork. It improves privacy, reduces fees, improves smart contract functionality, and makes Bitcoin transactions cheaper, more efficient, and more private. Taproot was proposed by software developer Gregory Maxwell in 2018.
Thanks to the upgrade, multisig transactions – transactions that require two or more parties to sign for them to go through – can be put together and verified. This increases the time it takes to validate complex multisig transactions, which were notoriously slow before Taproot was implemented.
The Taproot upgrade also benefits Lightning users by easing the network load on the Bitcoin base. LN transactions are verified on the Bitcoin blockchain, which can cause congestion. However, with Taproot, the Lightning Network becomes more efficient in processing transactions.
Taproot offers privacy because it can disguise multisig transactions as single signature transactions. This makes it difficult to identify the participating parties on the blockchain. The use of Taproot is optional, which means that its adoption will grow gradually. As of this writing, it was only about 1% of all Bitcoin transactions using Tapioca.
The Liquid Network
The Liquid Network is a Bitcoin sidechain that enables private Bitcoin transactions directed at major counterparties in the Bitcoin ecosystem. It also allows the settlement and issuance of stablecoins, security tokens, and other financial assets on a sidechain linked to Bitcoin’s blockchain. Blockstream is the company behind the Liquid Network, which went live in 2018.
A consortium of distributed members runs Liquid. These members range from exchanges and financial institutions to Bitcoin-focused companies. A few of the members listed on the Liquid website are Xapo, Wyre, Bitfinex, CoinShares, Huobi, Ledger and Paymium.
Users plug BTC to redeem it for L-BTC (which is backed by BTC at a 1:1 ratio), allowing them to conduct confidential transactions and enjoy faster transaction speeds and low costs. Unfortunately, the low usage of the network reduces the effectiveness of the privacy feature because practically no amount of people use it. Also, the federated model is somewhat centralized, giving the Liquid Network a different set of trust assumptions than Bitcoin.
FediMint
Federated Coins (FediMint) is a Bitcoin sidechain that solves the privacy and custody issues of Bitcoin.
Privacy is minimal because Bitcoin transactions are visible to everyone and most people still store BTC with third parties like exchanges, putting their money at risk. The open source FediMint protocol solves these two challenges by offering privacy and a lower-risk custody solution.
It uses the Byzantine Fault Tolerant (BFT) consensus algorithm for security purposes, and trust is shared across multiple parties in a federated coin. When users send BTC to these coins, they receive Ecash tokens. They can then send tokens to other users in the coin privately because other members will not know which parties are trading with each other.
FediMint allows users to give custody of their BTC to federated mints. They can do this by relying on certain members of the mint to act as guardians. The guardian’s role is to provide custody services via FediMint servers.
The development of FediMint is still ongoing. The project has received support from Ten31, Blockstream, Spiral and the Human Rights Foundation. FediMint is interoperable with the Lightning Network.
FediMint privacy can be improved with Flexible Round Optimized Schnorr Threshold (FROST). This is a new type of multisig that provides privacy and at the same time makes associations more flexible. It was introduced in 2020 paper by Chelsea Komlo and Ian Goldberg.
The Bitcoin technology developments discussed above could greatly expand Bitcoin’s potential, thereby making the cryptocurrency more useful in the near future. The development is also a reminder to Bitcoin newcomers that there is more to this project than just buying and holding coins for a potential profit.
Bitcoin developers are working to build good money that anyone worldwide can access and use digitally without censorship or bureaucratic entry barriers.
