By Gertrude Chavez-Dreyfuss

NEW YORK, (Reuters) – The company’s blockchain was upgraded on Sunday to allow it to perform more complicated transactions. This could potentially expand the use of virtual currencies and make them more attractive for smart contract processing.

Smart contracts can be self-executing and rely on pre-programmed inputs to achieve their results.

Taproot (the enhancement) is the largest change to the Bitcoin protocol since 2017. SegWit increased the number of transactions that can fit in a block. This was achieved by analyzing signatures taken from bitcoin transactions.

Noelle Acheson, head of market insights at Genesis, a digital currency prime broker, said bitcoin’s potential applications have become broader with Taproot.

She said that more flexible transactions and lower prices are likely to encourage the development of DeFi and NFTs on bitcoin. This could help set the scene for technological advancements on the original cryptocurrency network.

Taproot’s activation led to a surge in bitcoin that pushed it up to $69,000 on November 10th. In the two most recent months, bitcoin’s price has increased by 47%.

WHAT IS TAPROOT?

Taproot upgrades consist of three distinct upgrade options. At its heart, however, is a new digital signature system called Schnorr that will make bitcoin transactions more efficient and private. Schnorr is also a tool that allows bitcoin users to execute smarter contracts.

WHAT TIME WAS TAPROOT PROHIBITED?

Taproot officially became active on Sunday at block 709632. Transactions are settled in blocks or batches by blockchains. One block can only contain a limited number of transactions.

Market participants stated that discussions on the upgrade started in 2016. Since September, the Taproot upgrade is part of bitcoin software.

WHAT IS BITCOIN’S IMPACT?

It would have the greatest impact on how fast bitcoin can process smart contracts. This is similar to Ethereum.

Katherine Dowling, general counsel & chief compliance officer at digital asset investment firm Bitwise, said bitcoin has historically been much more limited in processing smart contracts compared with Ethereum.

Taproot is a new smart-contract platform that will allow bitcoin to be more flexible than Ethereum. This means that we will see an increase of bitcoin applications in daily life,” she said.

WHAT ARE THE OTHER ENHANCEMENTS?

Taproot makes it more private by making it difficult to identify the transaction type being performed. Schnorr signatures are able to make complex bitcoin transactions, including those that involve multiple signatures from wallets, appear like any other transaction. These transactions are more secure and private.

Bitcoin transactions will become data efficient, optimising block capacity, and leading to lower transaction costs, stated Genesis’ Acheson.

WHAT IS TAPROOT IMPORTANT FOR INVESTORS

Bitwise’s Dowling claimed that large-scale upgrades have made it possible for innovation to take place in bitcoin networks. She pointed out that 2017’s last major upgrade helped to launch the Lightning Network. This allowed for faster, cheaper payments.

Taproot will likely lead to a similar surge in innovation for bitcoin that is centered around smart contract technology, according to Sheila.