Written by Sylvain Saurel - In Bitcoin We Trust
After four years without any major upgrades, the Bitcoin protocol has just experienced a major one with the activation of Taproot during November 2021. Taproot will be an essential game-changer for the future of Bitcoin, setting the foundation for future innovations that will be developed on top of the Bitcoin system in the years to come.
Before Taproot, the last major upgrade, also called a “soft fork”, was Segregated Witness. So soft forks are not that common for the Bitcoin protocol, and that makes total sense. Bitcoin needs to evolve safely to ensure that no bugs are introduced into its system in a hurry.
Billions of dollars are at stake, and more importantly, the fate of the Bitcoin revolution, where a major bug would be a major blow to the confidence of millions of users who hope for a better future with Bitcoin.
While Taproot has been slow to become a reality for the Bitcoin protocol, that doesn't mean that the developers in the Bitcoin community haven't done anything else in the meantime. They are constantly working on a whole bunch of topics that could lead to potential new soft forks in the months and years to come. These topics are grouped under the umbrella of BIP (Bitcoin Improvement Proposal).
Here are the main ones that could be integrated into the Bitcoin protocol shortly.
BIP 118 - SIGHASH_NOINPUT
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 - OP_CHECKTEMPLATEVERIFY
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.
Drivechains
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.
Cross-input signature aggregation
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.
Final Thoughts
There is no telling whether these upgrades will be implemented in the Bitcoin protocol sooner or later. However, these are the ones that are currently being discussed the most. As you can see, many of them will be made possible by the Taproot upgrade that has just been activated on the Bitcoin network.
Finally, it just goes to show you that the Bitcoin protocol is supported by a community of developers who work hard every day to make it better for everyone. With such devotion, the Bitcoin revolution has a bright future.
In Bitcoin We Trust
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