The update, scheduled for Nov. 16, has highlighted some investors’ concerns about the Bitcoin network’s capacity to adapt and grow – specifically, that its first-mover advantage may be diminishing. When the Bitcoin network received a significant update in July 2017, the cryptocurrency’s price increased over 50% until Aug. 23, when the modifications became live.
Now, as the original blockchain network prepares for its next major update, code-named Taproot, in November, few investors anticipate a market response of that magnitude. Bitcoin’s price has nearly quadrupled this year and just reached a new all-time high of around $67,000. While more advances are conceivable, Taproot alone is unlikely to be the spark. “The Taproot update will have a negligible effect on the price of bitcoin,” according to Edward Moya, the senior market analyst at online foreign exchange broker Oanda.
The Taproot update, which is scheduled to take effect on Nov. 16, is aimed to enhance privacy safeguards for some network transactions using an invention known as “Schnorr signatures.” Additionally, the update will enable more lightweight “smart contracts” — programs stored on a blockchain that execute when specific circumstances are fulfilled. Smart contracts have been a defining feature of the competing Ethereum network, enabling rapid development in decentralized finance (Defi) applications aimed at automating several banks and trading business tasks.
“This is a watershed moment for Bitcoin,” Don Guo, CEO of Broctagon Fintech Group, said. Nonetheless, the experience highlights a critical distinction between Bitcoin’s approach to network development and that of competitor blockchains, where updates and modifications are significantly more frequent. Ethereum, the second-largest blockchain, has seen the price of ether, its native cryptocurrency, quintuple this year, after its August “London hard fork.” Ethereum is currently moving ahead with its “Ethereum 2.0” revamp, which is due next year.
Is Taproot beneficial to bitcoin? Bitcoin proponents argue that the glacial pace demonstrates how deliberate and circumspect its creators are – careful of changing anything that may jeopardize a revolutionary blockchain network that has surpassed most predictions since its launch 12 years ago.
However, some investors have become warier of Bitcoin’s capacity to adapt and expand, fearful that the network’s first-mover advantage may be diminishing. Given the industry’s fast progress, four years without a significant change may seem like an eternity to some.
“Some may claim that bitcoin’s lack of updates demonstrates its technological superiority over Ethereum,” said Denis Vinokourov, Synergia Capital’s director of research. He said that the Taproot improvement is unlikely to have a significant influence on the cryptocurrency’s price, given it has been widely anticipated for years.
“There is a danger that the market would see it as something that is already accessible elsewhere,” Vinokourov said. Despite the infrequency of updates, Adam Back, CEO of Blockstream, a leading Bitcoin developer, told CoinDesk in an interview that armies of workers are always working on network enhancements in the background. Since 2018, when the Segregated Witness, or “SegWit,” update was completed, developers have been planning for the Taproot upgrade.
“This is a myth that many believe, that Bitcoin is not growing rapidly,” Back said. “Many people believe that the long and stringent quality insurance process results in a lack of change. There is a change pipeline, and it is rather substantial, but it has a lengthy release timetable due to the necessity for testing.”
“People get antsy,” Back explains, “since it’s been a year since they first heard about it in the news.” “Competing currencies engage in a great deal of future marketing around what may occur in five years,” he said. It was just four years ago…
If history is any indication, the update might result in significant improvements. SegWit increased Bitcoin’s scalability in 2017 by “segregating” particular data from individual transactions, essentially shrinking them. This technique enabled the processing of more transactions without raising the size of individual data blocks.
Additionally, the 2017 update enabled the Lightning Network, a supplementary layer built on top of the Bitcoin foundation layer that enables near-instantaneous, free, and more private bitcoin transactions. The Lightning Network’s development since 2017 has made it a linchpin of El Salvador’s push to make bitcoin legal tender alongside the US dollar.
SegWit was adopted on July 23, and by the time the update went live a month later, the price of bitcoin had increased by 50% – to a then-amazing $4,247 on Aug. 23, 2017. However, with bitcoin trading over $60,000, some investors believe the cryptocurrency’s price increase may have peaked.
“There may be a ceiling on how much further upside you can get from bitcoin,” said Daniel Cawrey, chief operating officer of Cypherpunk Holdings Inc., a digital asset investment business. (Cawrey formerly worked as a reporter for CoinDesk.) “If you’re an institutional investor, it seems as if you’ve already missed the boat,” Cawrey said. This is why, according to Cawrey, investors are turning to Ethereum and a slew of competitor blockchains dubbed “Eth killers.”
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