Bitcoin taproot exploitation hits new ATH, thanks to Ordinals
Data shows that Bitcoin taproot exploitation has now reached a new all-time high, thanks to the rise of Ordinals on the network.
Bitcoin Taproot Exploitation Hits New All-Time High of 4.2%
According to the latest weekly report from Glassnode, both Taproot adoption and utilization have reached all-time highs recently. “Taproot” is a BTC upgrade that introduced some changes to how transactions are processed, to make them faster and more efficient. The upgrade went live back in November 2021.
The “Taproot adoption” here is a metric that tells us how much adoption the upgrade has seen among users on the network. The indicator is inspired by the one the community came up with to monitor SegWit adoption (SegWit is another BTC protocol that went live back in 2017).
Similar to SegWit adoption, Taproot adoption quantifies adoption based on the percentage of total Bitcoin transactions that have at least one Taproot input involved.
However, this method has a major flaw. Glassnode’s report on SegWit adoption from last year summarized the issue using the example in the figure below:
Three examples of BTC transactions | Source: Glassnode
In this example, the center transaction involved one SegWit entry (and four legacy ones), while the right one had five SegWit entries. Since the SegWit adoption indicator only cares about how many transfers include at least one such input, both middle and right transactions will be considered SegWit transactions.
Because two-thirds of the transfers here are SegWit according to the indicator, the adoption would be valued at 66%. However, this is clearly not an accurate representation of the actual usage of the protocol, as the indicator ignores the finer details of the transactions.
To solve the problem, Glassnode came up with the “utilization” calculation, which actually counts all used outputs involved in a transfer and calculates the value based on the grand total. If this new indicator is applied to the example above, the utilization will come out to be 40% as only 6 of the 15 entries here are made using SegWit ready software.
Coming back to Taproot, this same methodology can also be used to judge the acceptance of this Bitcoin upgrade. Below is a chart showing the trend in 7-day moving average (MA) Taproot adoption, as well as utilization, since the upgrade went live back in November 2021:
The 7-day MA values of both the metrics seem to have shot up recently | Source: Glassnode's The Week Onchain - Week 7, 2022
As shown in the graph above, both 7-day MA Bitcoin taproot adoption and usage have risen rapidly recently, reaching new all-time highs of 9.4% and 4.2% respectively. The adoption here is more than double the utilization, which further shows how misleading the picture presented by the previous indicator can be.
The reason behind this sudden increase in taproot utilization is the rise of Ordinals in the market. Ordinals is a protocol that uses Taproot to write data into the witness part of a BTC transaction.
Simply put, what Ordinals allows a user to do is attach things like images to BTC transactions, which has led to the explosion of non-fungible tokens (NFT) on the blockchain. Since these NFTs have quickly become popular, it’s no surprise that Taproot has also seen significantly more usage.
BTC price
At the time of writing, Bitcoin is trading around $21,800, down 5% in the last week.
BTC continues to move sideways | Source: BTCUSD on TradingView
Featured image from Dmitry Demidko at Unsplash.com, Charts from TradingView.com, Glassnode.com
