The technology of Bitcoin (BTC) has evolved significantly since its launch. Bitcoin is constantly being developed, with the community striving to improve its privacy and scalability. The original Bitcoin client, BitcoinCoreis currently at version 23.0, indicating that a lot has been happening behind the scenes – there are a total of 37 Github releases at the time of this writing.
Read on to discover five developments in Bitcoin technology intended to help BTC reach its full potential.
Top Bitcoin Tech Developments You Need to Know About
Over the years, many Bitcoin Improvement Proposals (BIPs) have been presented to the community, providing various solutions to improve the network. Some were approved and implemented, while others were rejected. Bitcoin Core developers and over 800 contributors participate in the Bitcoin development process.
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 concerns the malleability of transactions and increases the validation rate by storing more transactions in each block. SegWit paved the way for lightning network and upgrade Taproot.
SegWit was proposed in 2015 by Bitcoin developer Peter Wuille. The SegWit upgrade sparked a “war” within the Bitcoin community even before it was activated. Community members who were against this change forked the Bitcoin blockchain to create bitcoin-cash (BCH).
SegWit removes “cookie data” from a block, reducing transaction sizes and creating more space in blocks. Therefore, they can hold around 2,700 transactions after SegWit, compared to around 1,650 transactions before the upgrade. Cookie data is the second part of a transaction that includes transaction signatures. The first part of the transaction contains the sender and receiver wallet addresses.
SegWit also fixed transaction malleability, a term that refers to the possibility that part of a transaction can be modified “after a transaction has been signed without invalidating the signature.” The second phase of this upgrade, SegWit2x, was not launched because it was rejected. The goal of SegWit2x was to increase the block size to 2MB. Adoption of SegWit increased sharply in 2021 and has been increasing ever since. As of this writing, SegWit adoption at the transaction level is 84%.
The Lightning Network
the Lightning Network (LN) is a level 2 payment protocol built on the Bitcoin blockchain. It was proposed by researchers Thaddeus Dryja and Joseph Poon in 2015. Their article was based on Satoshi Nakamoto’s insights into payment channels and forum discussions he had about it. In 2016, Dryja and Poon created Lightning Labs, a company that would focus on the development of the LN. They released a beta version of the LN in 2018.
The Lightning Network uses smart contract functionality, allowing users to perform instant off-chain microtransactions. Payments take place within payment chains (multi-signature contracts), allowing two parties to transact with each other. The LN offers remarkably low fees because transactions and settlements are done off-chain. It can potentially process billions of transactions per second, solving Bitcoin’s scalability problem.
The Lightning Network is not perfect, however. It has issues that are being resolved. Some of the current solutions are the road blinding and the onion routing trampoline. the road blindingfor example, aims to improve privacy for the recipient of a transaction.
LN capacity increased in 2022 despite the bear market. It surpassed 5,000 BTC in October 2022. This is the cumulative capacity held by all LN nodes. Companies are also investing a lot of money in the Lightning Network. Strike for example, a digital payments provider LN, raised $80 million in a fundraising round led by Ten31.
Taproot
Taproot is a Bitcoin upgrade rolled out in November 2021 via a soft fork. It enhances 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 this update, multisig transactions – that is, transactions that require the signature of two or more parties to be executed – can be grouped together and verified. This reduces the time needed to commit complex multisig transactions, which were notoriously slow before Taproot was implemented.
Taproot’s upgrade also benefits Lightning Network users by reducing network congestion on Bitcoin’s base layer. LN transactions are verified on the Bitcoin blockchain, which can lead to congestion. With Taproot, however, the Lightning Network becomes more efficient at processing transactions.
Taproot offers privacy protection as it can disguise multisig transactions as single sign on transactions. It is thus difficult to identify the participating parties on the blockchain. The use of Taproot is optional, which means that its adoption will be gradual. As of this writing, only around 1% of all Bitcoin transactions use Taproot.
The Liquid Network
the Liquid Network is a bitcoin sidechain that enables private transactions in BTC to major counterparties in the bitcoin ecosystem. It also allows the settlement and issuance of stablecoins, security-type tokens and other financial assets on a sidechain linked to the Bitcoin blockchain. Blockstream is the company behind the Liquid Network, which went live in 2018.
It is a collection of members who are “distributed” who operate the Liquid network. These members range from exchanges and financial institutions to bitcoin-focused businesses. Some of the members featured on Liquid’s site include Xapo, wyre, Bitfinex, CoinShares, Huobi, Ledger and Paymium.
Users back BTC to exchange for L-BTC (which is backed by BTC at a 1:1 ratio), allowing them to conduct confidential transactions and benefit from faster transaction speeds and low fees. Unfortunately, the low network adoption reduces the effectiveness of the privacy feature as there are hardly many people using it. The federated model is somewhat centralized, which gives the Liquid Network less trust.
Fedi Mint
Federated Mint (FediMint) is a bitcoin sidechain that solves the privacy and custody issues of bitcoin.
Privacy is minimal because BTC transactions are visible to everyone, and most people still store their bitcoins with third parties like exchanges, which puts their funds at risk. The open-source FediMint protocol solves both of these problems by providing privacy and a lower-risk custodial solution.
It uses consensus algorithm Byzantine Fault Tolerant (BFT) for security purposes, whereby trust is distributed among several entities in a mint federated. When users send BTC to these mints, they receive Ecash tokens. They can then send these tokens to other users within the mint confidentially, as other members will not know which parties are transacting with each other.
FediMint allows users to entrust mints federated custody of their BTC. To do this, they can trust certain members of these mints to act as guardians. The role of custodians is to offer custodial services through FediMint servers.
The development of FediMint is still ongoing. The project has gained support from Ten31, Blockstream, Spiral and the Human Rights Foundation. FediMint is interoperable with the Lightning Network.
Privacy on FediMint can be enhanced by the system Flexible Round Optimized Schnorr Threshold (FROST). This is a new type of multisig that provides privacy while making federations more flexible. It was featured in a 2020 article by Chelsea Komlo and Ian Goldberg.
The technological evolutions of Bitcoin discussed above could greatly expand the potential of this cryptocurrency, thus making it more useful in the near future. These developments also remind newcomers to the Bitcoin world that there is more to this project than buying and holding Bitcoin for potential profit.
Bitcoin developers strive to create a sound currency that anyone, anywhere can access without censorship or bureaucratic obstacles.