Updated
June 14, 2022
5
min read
What is Taproot and How It Affects Your Bitcoin Investments
Find out what Bitcoin Taproot means for you and your BTC investments.
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Earlier this month, on November 14, the Bitcoin Taproot upgrade went live. It is a rare moment of consensus and the first makeover of the Bitcoin network in the last four years. The last upgrade in the Bitcoin blockchain was SegWit, which went live in 2017. In this post, we will review what Taproot is and what kind of changes this upgrade brings to the Bitcoin blockchain. Most importantly, we will examine how Taproot affects Bitcoin investors.
What Is Taproot?
Taproot combines three upgrade changes into the Bitcoin protocol after achieving a 90% consensus of all miners on the network. In technical terms, it is a soft fork. In simple terms, it makes working on and using the Bitcoin blockchain easier, faster, and more secure. The major change that came as part of the recent upgrade is the implementation of the Schnorr signature. This upgrade allows the Bitcoin network to execute smart contracts, further expanding what can be done using BTC and the Bitcoin network. In a nutshell, Taproot aims to make Bitcoin transactions more efficient and increase the network’s privacy.
The upgrade will reduce the transaction sizes, and the bigger, more complex transactions will be indistinguishable from smaller transactions. This helps in two ways. It offers more privacy since no one can even guess if the transaction is single or multi-signature, which adds an additional layer of anonymity to the network. In addition, reduced transaction size allows even more complex transactions to be done just as efficiently as more simple transactions, which addresses the challenge of how to make bitcoin transactions faster to meet the rising demand in transactions.
Broader Applications For Bitcoin Smart Contracts
The upgrade is the most likely to trigger more technological progress on the Bitcoin blockchain, paving the way for more NFT and DeFi projects. Bitcoin has been seen solely as a store of value for most holders and cryptocurrency enthusiasts. However, the implementation of Taproot will give more capability to the Bitcoin blockchain when it comes to smart contracts.
With Taproot, Bitcoin can now process more smart contracts, which in turn should drive an increase in day-to-day applications on the Bitcoin protocol in time to come.
While Taproot will not make Bitcoin as flexible as Ethereum, which is considered the most flexible of the networks in crypto, it is promising to improve Bitcoin to make it more than just the OG cryptocurrency and narrow the gap between Bitcoin and Ethereum network.
Improvements in Privacy and Security
As a public network, transactions on the bitcoin network can be seen by anyone. While it doesn’t show private information about the senders and receivers, just the fact that it is in a public place and people can guess the transaction type is a concern for some people. As mentioned above, with the Taproot upgrade, the transactions will look the same whether they are single or multi-signature. This extra anonymity is an important feature that further strengthens Bitcoin’s position in the crypto community, which has been anticipating an improvement in the privacy and security of the network.
How Does Taproot Affect Me As A Bitcoin Investor?
Although the full effects of the Taproot upgrade will take some time to be felt, many of these will have positive consequences for Bitcoin holders and investors.
- Lower transaction fees will lead to higher adoption and use of BTC. As the use of the coin increases, the value of BTC also increases in the long run. This translates into BTC keeping its status as a top cryptocurrency and a smart choice for investors to diversify their portfolios.
- More privacy and security. While the cryptographic nature of BTC is obvious, there is still a way to track transactions back to people. The Taproot upgrade helps to make the network more secure by adding more anonymity to transactions. This also helps to attract more transactions, driving wider adoption of BTC. Going back to the previous point, the higher the demand for a said cryptocurrency, the better choice it is as both a store of value and an option for investment to generate passive income. It all boils down to the price of BTC and where it will be headed in the future, as higher adoption will further stabilise the price and the position of BTC in the market.
- Enhanced smart contracts and higher functionality means even better potential for technological advancement. Potentially more DeFi and NFT projects are going to be associated with BTC and use the network. This can be good news for inventors, artists, and most importantly, investors who will be able to take their piece of the pie from the Bitcoin blockchain (relatively) early on.
Invest in Bitcoin With Cabital
While the future is bright when it comes to BTC and the recent Taproot, you might ask: “What can I do today to use BTC and Bitcoin network and generate passive income or income in general?”
Whether you are a seasoned crypto investor or just getting started and testing the waters, Cabital has different options for you.
Here is how you can invest in Bitcoin:
- Buy & Sell BTC: Using trustworthy platforms, such as Cabital, you can buy and sell crypto anytime using your phone. This is a great option for people who are just getting started but want to see their chances and learn and potentially earn with Bitcoin. You can convert euros or pounds to crypto with a few clicks and start your crypto investing journey. You can also cash out your earnings in pounds or euros anytime.
- You can deposit your BTC for 7, 14, and 30 days and earn leading interest rates at Cabital. This is a safe and secure way for you to earn and get started with generating passive income with crypto. Cabital is a verified company in the EU, and while you deposit your coins, you can have peace of mind knowing your assets are invested in projects that have passed stringent requirements.
If you are considering putting some of your funds into a traditional savings account at your local bank — converting your investment funds to crypto and depositing them in a crypto interest account is an alternative with higher returns.
Besides BTC, Cabital also offers stablecoins as a deposit option. Depositing USDT with Cabital lets you earn competitive APY rates, and you can get started right away on the Cabital app if you have your ID with you. Your earnings will be far better than a traditional savings account, and you can easily track the dollar value of your investments from your phone. By knowing how much you're earning on your crypto investments, you can decide when's the right time to rebalance your portfolio to achieve your investment target.
This article has been prepared by Cabital Fintech (LT) UAB (the “Company”) and is general background information about some of the Company’s activities at the date of this presentation.
This article does not contain all the information that is or may be material to you and should not be considered as advice or a recommendation to you in respect of the holding, purchasing or selling of digital assets and does not take into account your particular objectives, financial situation or needs. This article has been made to you solely for information purposes. This presentation may be amended and supplemented as the Company sees fit, may not be relied upon for the purpose of entering into any transaction and should not be construed as, nor be relied on in connection with, any offer or invitation to purchase or subscribe for, underwrite or otherwise acquire, hold or dispose of any digital assets, and shall not be regarded as a recommendation in relation to any such transaction whatsoever. The contents of this presentation should not be considered to be legal, tax, investment or other advice, and you should consult with your own counsel and advisers as to all legal, tax, regulatory, financial and related matters concerning an investment in or a disposal of such digital assets and as to their suitability for you.
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