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What’s Next for the Bitcoin Protocol Now That Taproot Has Been Activated? | by Sylvain Saurel | Nov, 2021

What’s Next for the Bitcoin Protocol Now That Taproot Has Been Activated? | by Sylvain Saurel | Nov, 2021


In the original Lightning Network whitepaper, Joseph Poon advocated the use of SIGHASH_NOINPUT to be able to create the first commitment transaction that references the txid of the funding transaction without actually signing the funding transaction.

This document was written before the implementation of Segregated Witness (SegWit). Currently, the Lightning Network, therefore, operates without SIGHASH_NOINPUT as a new hash flag signature. This does not seem to be a necessity at the moment.

However, Christian Decker has since proposed the eltoo payment channel construction. The latter would get rid of the penalty-based construction that is currently used and thus significantly reduce the overhead of maintaining the channel state since the state becomes symmetric for all participants. In particular, multiparty channels and channel factories would become easier to use.

Eltoo depends on the implementation of SIGHASH_NOINPUT because the channel state is encoded as a chained list of update transactions that, in case of a protocol violation, are skipped from the point of violation to the current channel state, which requires SIGHASH_NOINPUT.

All Lightning Network developers agree that Lightning channels would benefit from being built via eltoo. For this to happen, BIP 118 will need to be implemented within the Bitcoin protocol. Like Taproot, it’s not the development itself that is most anticipated, but what it will enable next.

BIP 119 aims to incorporate a new opcode that will be used for transaction congestion control and payment channel instantiation primarily. The opcode OP_CHECKTEMPLATEVERIFY is one of the technical approaches being considered for the implementation of covenants.

Covenants are restrictions on how a corner can be spent beyond key ownership. Covenants can be useful in the construction of smart contracts. They can also be used to further boost the scalability of the Lightning Network in the future.

Complex to implement and coming with a risk of introducing discriminating fungibility, covenants remain in the draft stage for now and have never really been seriously considered for inclusion in the Bitcoin protocol. One technical approach being considered for covenants is based on the opcode OP_TAPLEAF_UPDATE_VERIFY.

If you’re interested in the cryptocurrency world, you’ve probably already heard of the concept of “Sidechains”. This is a feature that has long been proposed to be added to Bitcoin. These are additional blockchains that can be pegged to Bitcoin. Some of these sidechains could be used to test new experimental technologies that Bitcoin has not yet implemented.

One can think here of a feature similar to zk-SNARKs used by the Zcash privacy coin. This feature offers Zcash users more privacy than Bitcoin currently offers its users. Users could lock up their Bitcoin to use this new coin in a sidechain.

In addition to the BIP 300 and BIP 301 that he carries, researcher Paul Sztorc has implemented with other developers a working version of this sidechain idea under the name Drivechains.

Nevertheless, “Drivechains” represents a very controversial idea within the Bitcoin developer community, because some developers say that it could give too much power to the miners of the Bitcoin network. So this feature is not for tomorrow, but it’s good to know that it is one of the ideas that are mentioned from time to time in the Bitcoin world.

The activation of Taproot paves the way for a whole bunch of new developments on top of the Bitcoin blockchain. This is the case with cross-input signature aggregation (CISA). Digital signatures are a crucial part of Bitcoin. When a user wants to send Bitcoin, he has to sign his Bitcoin using his private keys to prove that he is the owner of that Bitcoin.

Taproot introduces Schnorr signatures, which allow multiple signatures to be combined into one, making transactions a little cheaper while boosting scalability.

Above Taproot, the CISA feature allows signatures in a single transaction to be aggregated. The main consequence of CISA is that it would make CoinJoin transactions cheaper. Used via the Wasabi and Samurai wallets, CoinJoin is a method to boost the privacy of users’ transactions.

With CISA, CoinJoin transactions would become less expensive, which would encourage more users to use them. This would greatly enhance the privacy of the Bitcoin network. CoinJoin would no longer be something you have to pay more for, but the norm.



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