We’re in it for the tech.

Bitcoin is undergoing a quiet revolution in terms of its usability and capability. Seeing as the price action indicates that nobody knows which way bitcoin will go right now it seems a good time to dive into recent progress being made. Let’s just hope El Salvador doesn’t come asking for a refund in the meantime.

Lightning Network

While there’s a sea of red, the number of bitcoin lightning nodes, channels, and capacity have been on a steady increase and show no signs of slowing. Unlike the markets, the uptick has been slow and steady rather than quick and volatile. During this downtime, it may be the perfect time to make a node for yourself and stack some extra sats by providing a bit of liquidity to the network.

You can see the metrics for yourself here: https://bitcoinvisuals.com/

Nvidia set to make miner specific chips

Gamers can rejoice as Nvidia set their sights on developing a line of graphics cards purely for cryptocurrency mining and reducing the potential hashing power of their gaming-specific cards for their core gamer audience.

Nvidia chips are commonly used for Ethereum mining, which has been accused of gobbling up all the supply and this move to create a specific product line for that purpose is likely a response to both decoupling the stock price with the movements of cryptocurrencies, which resulted in an outcry of gamers not being able to get their hands on the best chipsets. Although scalping practices also took a large chunk of the pie.

From 2013 there has been a strong correlation between the share price of Nvidia and the crypto-market — following the run-up from 2016 to early 2018, followed by a horrendous hangover in 2019 and reaching ATH in 2021.

This news coming at the same time as the Chinese crackdown on all cryptos means Nvidia could be in a prime position to take on some more chipset demand from hungry miners and have made an investment to appeal to a new audience.

There seems like there’s very little not to like here; miners can have a bit more choice over the manufacturer, Nvidia has a new, always looking to upgrade, customer base while reducing their stock price exposure to cryptocurrency gyrations and, most importantly, gamers can have their ultra-high, max-dynamic anti-aliasing post-processing gaming experiences.

Taproot upgrade locked

Bitcoin miners have locked the network’s most significant improvement proposal since Segwit in 2017. Taproot has two goals, increased scripting (smart contract) capabilities, and scalability, and improved privacy of transactions — including those smart contracts — this has ramifications for the Lightning network.

The upgrade is made up of several different proposals which each improves on an aspect of the network and unlocks new usability when combined. Think of Taproot as the meal and its components; Schnorr signatures, MAST, and P2SH as the individual ingredients. With Taproot even the most complex smart contract ever created would look like any other ordinary (or unordinary) transaction taking place on the network.

Just like Segwit, Taproot has introduced a new output type for transactions, Pay to Taproot (P2TR). P2TR locks funds directly into a public key instead of a hash of a public key or script (read smart contract). It improves blockspace efficiency by saving the space needed to reveal the values used to create a hash and can be unlocked with only one signature — but how many signatures are in _that_ signature?

In order to understand Taproot it’s best to build up from the — errr — bottom, and describe what each component does.

P2SH

Pay to Script hash (P2SH) is a way of locking bitcoins in a script that defines how those coins can be next spent. Such conditions examples are multi-signature and timelocks — i.e. 2 of 3 signatures are required before funds can be transacted, or, funds are only able to transact after 1000 blocks.

A key benefit of having an open-source and malleable codebase as a monetary system is that the combination of smart contract conditions can be whatever you can imagine (and code). Try getting a bank to automate a payment 6 months from now that is dependent on potentially hundreds of outcomes! Currently, when creating a smart contract the conditions are not (normally) public, with only the new owner knowing how they can be spent using P2SH. The transaction hash is included in the blockchain, but once the new owner spends the coins the script (the smart contract conditions) is revealed, as well as which conditions were met in order to fulfill the smart contract.

This is a basic explanation, but you should be able to see where issues lie. Firstly this is a data-heavy system where all possible conditions are maintained on-chain. Secondly, this isn’t very private. The conditions and methods used to send funds could also have all sorts of meta-data and ways of extracting information that should otherwise be private.

Merkleized Abstract Syntax Trees — MAST

Merkle trees are a data structure that combines all hashes of individual transaction IDs into a single hash, the Merkle Root. This is currently used in bitcoin when producing a new block as the hashed Merkle root is included in the block header, it ensures all transactions are valid as a change to a single transaction in the Merkle tree will change the root hash.

As previously mentioned, in P2SH, all conditions of a smart contract can become knowable. To rectify this, MAST individually hashes the conditions of a smart contract. This continues to produce a Merkle root, but only the specific condition that has been met and therefore ‘unlocked’ the coins to be knowable (an additional piece of data — the Merkle path is also needed). Everything else in the script remains hidden.

This structure is more efficient than P2SH, lessens the complexity of scripting, as well as integrating privacy.

Schnorr Signatures

Schnorr Signatures is like the ribbon that ties this all together and adds a delicious lip-smack of approval.

Schnorr is a type of cryptography. It is more lightweight than Elliptic-Curve cryptography, which is used in bitcoin, and produces linear signatures. This ‘linearity’ gives it some cool properties like being able to aggregate many signatures (a multisig transaction) into one indistinguishable from any other transaction.

As well as this, Schnorr adds ‘adaptive signatures’. These are like being able to change private and public keys while they both still correspond. Normally messing with either or any part of a key would make it useless and not correspond to its counterpart. However, with adaptive signatures, if both the private and public keys have the same function, or ‘tweak’, performed on them they will still work as a pair. This enables the creation of Discrete Log Contracts (if you take one thing away from this piece let it be to find out more about Discrete Log Contracts) and coinswaps, without the transaction looking any different from an ordinary transaction.

Taproot

Now that we know the ingredients we’re cooking with, now comes the meal with the flair and flourish only a fine chef can muster.

A part of bitcoin’s game theory returns in Taproot. With MAST we know that bitcoin scripts, smart contracts, can get fiendishly complex but there is an assumption that for the parties entering into a contract there will be a most agreeable outcome. Both parties are able to execute the contract by signing the settlement transaction.

Taproot is a script type, similar to MAST, but adds that there will always be an option for all parties to ‘cooperatively close’. This results in a new public key the ‘threshold public key’ which is a combination of all public signatures in the contract. This new signature allows them to spend the funds.

Schnorr adds the ability for these potentially complex transactions, with Taproot MAST-like structures, to look like any other transaction publicly on the network when there is a ‘cooperative close’.

Schnorr uses the ‘adaptive signatures’ as outlined above to create a change in how the funds can be spent. With Taproot x Schnorr, a threshold public key is still created, but it is ‘tweaked’ and in doing so changes the script where the funds are stored, therefore the result is a ‘threshold public key x script’ which can only be unlocked with the ‘threshold signature x script’. So it’s still a combination of public keys but the script unlocking the funds has been ‘tweaked’ using Schnorr.

Only during non-cooperative closes does the signature show as being ‘tweaked’ — in which case the original threshold public key and script are revealed. Similar to P2SH, the tweak proves that the funds are spendable once the conditions of the script have been met. Alternatively, a MAST structure can be used to tweak a Merkle root that has all the conditions which are needed to spend the funds.

Basically, the Taproot upgrade is something that is hugely important to the development, usability, and scalability of bitcoin. It is high-level computer science condensed down into (barely) understandable English. The long and short is; bitcoin can create much more complex smart contracts with the added privacy of never revealing the hidden structures in place. It even seeks to even out the original incentive system if miners and the rest of the system see all transactions as equal.

“With the transaction fee-based incentive system I recently posted, nodes would have an incentive to include all the paying transactions they receive.”

• Satoshi, 2008–11–10

While it may be tricky to understand this, imagining what Taproot will be used for might even be more confusing — but the beauty of the open-source nature and adaptability of bitcoin means it will only be a matter of time before those uses come to light.