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Post-taproot era: Re-examining the positioning and narrative of Bitcoin in the multi-chain pattern

2021-10-31 16:10
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What does Taproot mean for Bitcoin?

原文标题:《后Taproot时代:重新审视比特币在多链格局中的定位与叙事 |链捕手 》
原文作者: Ninos Mansor、Omar Yehia、Ninor Mansor
原文编译: 麟奇,链捕手

In mid-November, Bitcoin will receive its first technical upgrade in 17 years -- Taproot. How will this affect the bitcoin ecosystem? How will bitcoin's governance evolve?

Arrington Capital partners Ninos Mansor, Ninor Mansor, and Omar Yehia recently wrote an analysis of bitcoin's post-Taproot future. It pointed out that Taproot could be a catalyst for governance of Bitcoin, representing a turning point in bitcoin innovation and governance.

Taproot supports key aggregation: complex multi-signed transactions will look like single-signed transactions on a chain. Bitcoin thus becomes more personal, making complex transaction types invisible to blockchain observers; In addition, Taproot makes Bitcoin more efficient by unlocking batch validation: nodes will more effectively validate the types of complex transactions supported by Schnorr signatures; Finally, Tapscript enhances Schnorr's performance and introduces opcodes that will make future upgrades more flexible.

Overall, Taproot makes Bitcoin more private, scalable and secure. It's an undisputed soft fork. The vast majority of participants agreed that Taproot improved bitcoin. Beyond these technical contributions, Taproot may represent a turning point in bitcoin innovation and governance.

Rather than saying Taproot is a revolutionary technology, we want to see Taproot as a catalyst for governance of Bitcoin. While this upgrade contributes little to the agreement, its greater significance may be in catalyzing the next big theme in Bitcoin politics.

As the crypto cycle has progressed, the market has accepted the idea that Bitcoin is "immobile" and has been overtaken by innovations elsewhere. Participants interpreted the post-2017 moderation as a period of stagnation. But we fundamentally see things differently: Bitcoin politics is more alive than ever, and the Taproot debate captures that energy.

The activation of Taproot will be the culmination of four years of discussions following 2017. While not controversial, the upgrade has sparked a new discussion about how to deeply understand the lessons of 2017 and balance the power between developers, miners and nodes going forward.

The post-Taproot era presents new opportunities for bitcoin's development, but it also highlights growing risks. As bitcoin enters the realm of nation-state actors and powerful technologists, the network will face new pressures. We speculate that highly trusted and well-resourced participants will lead new proposals for change that look more "reasonable" than the 2017 civil War proposals. These could represent a hidden threat to bitcoin's political stability.

The debate between tech hardliners and progressive incumbents is likely to intensify in the coming year, once again revealing the robustness of Bitcoin governance and potentially making the agreement easier to defend in the long run.

In this new chapter of Bitcoin, we believe that the network will slowly find its place in the broader L1 and L2 development and will at some point define its identity in the new multi-chain landscape. Taproot won't introduce a "bitcoin native DeFi" or a "Bitcoin smart contract," but it may inspire emerging L1, and multi-chain developers to explore bitcoin-centric innovation.

This opens up new opportunities and risks - how the web digests these discussions will be an important signal of the next step. At the same time, Taproot's contribution to Lightning Channel privacy could further inspire bitcoin's L2 story creation, just as Lightning shows signs of a mainstream "breakthrough."



Taproot's macro thesis

Taproot is the first change to the Bitcoin protocol since the Segwit upgrade in 2017. The upgrade includes three separate Bitcoin Improvement Proposals (BIPs) : BIP340, BIP341, and BIP342.

BIP340: Replace Elliptic Curve Digital Signature Algorithm (ECDSA) with Schnorr

BIP341: Merkelized Alternative Script Trees (MAST)

BIP342: Reform of bitcoin's scripting language through "Tapscript"

In general, Taproot uses the capabilities unlocked by Schnorr to enable new, complex types of transactions on the chain.

Our thesis here is not to talk about Taproot as a leap forward technology, but rather to focus on the development and changes in the post-Taproot era. Over the past year, the market has been skeptical of bitcoin. The market has been captivated by a slew of new claims that portray Bitcoin as the least innovative asset among cryptocurrencies.

Bitcoin is playing second fiddle to the emerging powers in the cryptocurrency world. Arguably, Ethereum went through its most important currency fulcrum, embracing the spirit of "ultrasonic money" and shaking bitcoin's leadership with EIP1559.

As Ethereum challenged Bitcoin, the L1 battle demonstrated the fundamental portability of ecosystems and developers. The quest for "fast DeFi" accelerates the interaction between L1 and L2 as new base layers drive ethereum scalability. The explosion of NFT has reinvented cryptocurrencies not just as a financial asset class, but as an asset class that could fundamentally change popular culture.

Bitcoin has underperformed all of these idiosyncratic and thematic trends. As a result, the consensus is that bitcoin is in trouble. Bitcoin's closed nature will make this lag indefinite, and it is even possible that its leadership will be displaced in the long term.

In our view, this skepticism not only ignores bitcoin's ability to govern with sustained vitality, but may also understate the coming turning point in the network: the period after Taproot's introduction.

The Taproot upgrade will be launched on or around November 16: Block 7096324. Four years in the making, Taproot was an uncontroversial proposal that left scars of the block wars and showed the market that Bitcoin could evolve while maintaining the spirit of extreme political stability.

The post-Taproot era could mark the beginning of a new technological, political and cultural era for Bitcoin. Taproot interprets the consequences of the block wars, where the very concept of a soft fork brings back sad memories of the animosity of 2017. The node declared its victory over the miners and declared Bitcoin independence Day, but quickly retreated into a highly conservative state of alert. The pace of technological discussion slows, replacing evolvability with hard-line stagnation -- all changes that can lead to existential conflict.

Critics who label Bitcoin "stagnant" not only miss the vibrancy and evolution of the soft fork design space since 2017, but also the nuances of what bitcoin innovation means. Innovation is not radical experimentation; It's a careful political game between networks, each with its own way of vetoing proposals -- a permanent power struggle between miners, developers and full nodes.

Figure 1: Bitcoin code development activity is the most active ever.

We think the market may be underestimating the vibrancy of Bitcoin governance, mistaking the fact that there is no core change for a sense of decline. Although uncontroversial, Taproot has sparked a lengthy debate. For the most part, the debate isn't about bitcoin's upgrade, but rather a heated exchange over the meta-issues underpinning bitcoin's transformation. How should change be proposed and initiated? Who should have the final say? If push comes to shove, will the miners or the nodes control the fate of the network?

Taproot's activation analyzed the nuances of Bitcoin governance while incorporating a 2017 precedent: It turned a bitter civil war into something that helped bitcoin move forward. Bitcoin can finally shake off the post-traumatic stress disorder of the block wars and embrace a new era of openness without forgetting the essence of technological utopianism.

Beyond what Taproot can do, we think the real value lies in what Taproot might mean. This upgrade could be a macro turning point for evolution and innovation, combining the best of post-Segwit conservatism with the dynamism of a new beginning. It's a meta-upgrade, a chance to redefine what it means to contribute to Bitcoin, whether it's miners, developers or full nodes.

Taproot came at the right time. Bitcoin is rapidly expanding into nation-states and spreading to the realm of powerful technologists and international financiers. An unprecedented new adopter power base has moved into crypto. They can deliver a more refined and effective attack than a group of unruly miners in 2017. Just last year, some countries launched attacks on Bitcoin, while others embraced it as a flag of financial sovereignty -- with extreme scenarios ranging from a Chinese boycott to el Salvador's embrace.

Taproot is an important milestone in cyber defensiveness, sparking new pressure on Bitcoin and potentially more vigilance and interaction at its political heart. The way the network now interacts with the international political system is quite different than it was in 2017. As bitcoin goes mainstream, there will be an even bigger push to tweak bitcoin: to make it relevant.

Well-capitalised participants may spend years building social and economic capital within the Bitcoin community and then (consciously or unconsciously) ally themselves with rivals, motivated by "sound" narratives such as ESG, scalability or DeFi. We believe that without a new era of governance and political dynamism, these attacks would have had a higher chance of success. Therefore, Taproot is not only a consolidation of bitcoin governance experience after 2017, but also a necessary step in bitcoin's anti-vulnerability.

Is bitcoin's soft fork design strong enough to prevent a new wave of forks, as these sub-chains siphon value and undermine consensus, while still embracing good, uncontroversial changes like Taproot? How will Bitcoin avoid another tantalizing Frankenstein moment? How can Bitcoin meet development needs without undermining its extreme political stability?

There are no clear answers to these open questions, but a healthy and robust environment for both formal BIP and informal political debate is essential to resolve them. Since 2017, Taproot has been the main embodiment of this political dynamism.

Beyond this macro and cultural turning point, Taproot could also mark the end of Bitcoin's isolationism within the broader L1 and developer ecosystem. L1 Wars captured the malleability of the "developer trench" to build a multi-chained world beyond Ethereum. After Taproot, we can imagine more L1 trying to interact with Bitcoin and unlock the "Bitcoin economy."

If L1s can add value to Bitcoin without compromising its security model, the ecosystem of Bitcoin "builders" could grow rapidly. We don't believe Taproot technically fits the idea of "DeFi on Bitcoin" or "smart contract on Bitcoin" -- we think it's because Ethereum people are clinging to EIP1559 as a way to compete with Bitcoin.

This potential interaction with L1 narratives also dovetails with the emergence of Bitcoin L2, which quickly found its niche in Latin America. Taproot has made some incremental improvements to the Lightning network to make it more private and perhaps more suitable for mainstream mass adoption. Ethereum has built a rich L2 ecosystem to date, and we don't think Bitcoin L2 is necessarily comparable. Still, there is an L2 story of native Bitcoin worth exploring, one that once again dispels the market's criticism that bitcoin is not innovative.



Dealing with Block War POST-traumatic stress disorder: Heal with Taproot


1) The return of "blockchain not Bitcoin"


As we enter the crypto cycle, critics contrast Bitcoin's attitude to change with that of other protocols, concluding that while it may have been ahead of the game, it remains stuck in an era of complacency. The market sees rigidity as negative, and craves technological idealism, the drive to experiment and iterate. Inevitably, participants old and new will come up with a familiar but recurring refrain: "Blockchain is back, not Bitcoin".

Bitcoin is fundamentally an economic innovation, not a technological one. Bitcoin's value lies in its rigidity. It is mount Tai in a dynamic and turbulent world. It is through the rigidity of design -- the most obvious and striking feature of this state is the fixed supply of 21 million. This extreme stability can be seen elsewhere, in the form of veto power between participants, a firm separation between full nodes and miners, and a pre-programmed inflation timetable (" halving ").

That said, rigidity also faces challenges. It may be the most durable property, but extreme stability comes with a paradox: capital bought for stability may eventually seek change. Each subsequent wave of mainstream adopters has brought Bitcoin deeper into a world that is always changing, a world that is beginning to demand that the Bitcoin protocol be similarly evolvable.

The question then becomes, how can it keep up with the world and adapt to new pressures, but still be Bitcoin? How can bitcoin remain the essence of bitcoin and embrace progressive technology while guarding against the dangers of "constant innovation"?


2) The swing between progress and stability


Bitcoin has always oscillated between paranoia about change and openness to evolution. In its early days, it has been changing at the pace of public forums and curated email chains. More recently, Bitcoin has established a conservative ethos, rejecting most changes as a path to new rivalries.

We believe that today's ultra-conservatism is part of the legacy of 2017. The block wars have inspired a natural but high level of conservatism. All soft forks can lead to hard forks. Sectarian warfare -- a battle over whether miners or nodes rule networks -- sets the stage for the rule of technoconservatives in the years ahead. They became the guardians of the web, the guardians of change. Any change in Bitcoin -- even on the periphery -- recalls this power struggle. The BCH network finally experienced its own encroachment in the BSV War of 2018, proving this hardline spirit: that technological innovation was the cause of the network's eventual demise.

This kind of technological conservatism is a hallmark of Bitcoin. If iteration destroys extreme stability, it may destroy protocols more than the marginal benefit of innovation. Conservatism is part of the immune system. On the other hand, as with any political system, bitcoin inevitably oscillates between stability and evolution, going through new periods of excitement and longing.

As a potential turning point, Taproot could be the beginning of a new opening. The escalation, the first since 2017 and without controversy, allayed fears that all change was a catalyst for sectarianism. It gives bitcoin traders and the market time to breathe a sigh of relief and finally digest the self-serving fragments of the past. It allows Bitcoin to deal with post-traumatic stress disorder in block wars and move forward.


Testing ground for dark warfare: Taproot as preparation


The nature of bitcoin attacks has evolved as the network has evolved. The believable threat of 2017 today looks like a chaotic bunch of old guns and rough-and-tumble miners jockeying for power. The next round of confidence attacks will look very different, most likely from highly trusted, well-resourced new entrants.

Post-taproot innovations may inspire these attacks, but they also encourage old guards to strengthen their defenses. Powerful technologists, financiers and politicians are now in bitcoin's orbit. They are a powerful foundation that bitcoin's different stakeholders do not yet understand.

As Bitcoin becomes a mainstream asset and is joined by more powerful and diverse stakeholders, these attempts at change are becoming more and more likely. We can imagine a scenario in which powerful technologists gradually monopolize bitcoin tools, building trust within the developer community and gradually reshaping the consensus around the BIP approach. These players may slowly crowd out hardline, self-sovereign, complete nodal types in favor of a more "conciliatory" governance philosophy.

In the end, it is the same power struggle as it was in 2017: a swing between corporate and miner interests, and an uncertain swing between "all-node" sovereignty. In our view, however, these more "covert" attacks will be different from 2017: they look reasonable and necessary.

They can take the form of popular mainstream terms such as ESG, Bitcoin DeFi, or Medium of Exchange (MoE) scalability. The institutionalization of Bitcoin will inevitably inspire, fund and mobilize a new BCH-style struggle, only it won't feel like a direct attack.


1) Improve anti-vulnerability: Can Bitcoin survive hidden enemies?


To protect the network from the effects of dark warfare, bitcoiners need to remain vibrant and politically engaged. After 2017, extreme closed-minded thinking served the web, but it made bitcoiners look unreasonable. Hardliners who blindly reject change and do not engage in strict governance will embolden their enemies, who are now more acceptable to the mainstream and may be more popular than the "big block".

That's why we think Taproot is an important turning point. It puts new pressure on the network. We can make any change now, and that will encourage actors who want more change.

In our view, no network's governance layer is as complex and reliable as Bitcoin's. Criticisms of bitcoin's relative "stagnation" fail to capture the evolving web of developer contributions and stakeholder dialogue. We think these soft fork design debates are just getting started and are likely to heat up in the coming year.

The post-Taproot era will bring new opportunities and risks. As Bitcoin enters its next phase, how bitcoin's different stakeholders react, organize and adapt to this new environment will be a key signal of cyber anti-vulnerability.


Post-taproot Bitcoin L1 and L2 innovations

Our argument is that Taproot is less important as a direct catalyst for innovation and more important as a turning point in the innovation and governance story. Even though Taproot is a relatively benign change, at the same time the rapid change rate opens the door to more soft forks.


1) Bitcoin enters the multi-chain era


The L1 War captures the malleability of the "developer trench." DeFi protocols emerged outside ethereum, channeling liquidity and finding new talent across international borders. Bitcoin is not part of this trend, except for a purely centralized solution like Wrapper Bitcoin (WBTC).

While Taproot does not directly set the stage for cross-chain expressiveness and portability (which would require fundamental changes to bitcoin scripts), its new attitude to change may encourage the emerging L1 to interact with the edge bitcoins. So far, there's no clear reason for L1 and Bitcoin to form an alliance, but that could change.

The fast L1 can find a product market intersection between bitcoin holders and users. A suitable product market can be found between bitcoin holders and users. If they remain decentralized and pay homage to Bitcoin, bitcoiners may be slightly more open to "crypto" innovation. In a sense, some L1S could become the "BD weapons" adopted by Bitcoin -- which could be a win for these chains, since they're not trying to compete with Bitcoin as a currency.

We've seen some signs in this cycle, including Algorand trying to build infrastructure to support Chivo wallets in El Salvador, Blockstack trying to position itself as a "Layer 1.5" that can connect Bitcoin to other chains, And Sovryn's attempt to build a money market and "Bitcoin DeFi" through the RSK side chain.

In one case, L1, which uses its own scripting language, tries to become bitcoin's middle side chain, theoretically guiding the native Bitcoin user experience. These L1S may aspire to connect Bitcoin to the wider L1 world, thinking they can help bitcoin move beyond its current isolationism and embrace crypto internationalism.

This bitcoin and multi-chain L1 interaction has both short - and long-term considerations. One question bitcoiners might ask is how these L1s help or hurt bitcoin security. Are they actually helping to expand the bitcoin economy without undermining its core value, or are they extracting fees that would otherwise have been paid to miners? Each L1 will claim to "help Bitcoin," but how will the Bitcoin ecosystem evaluate the long-term risks and rewards of these proposals?

We don't have a strong opinion on this subject, but think it could also heat up in the post-Taproot era. One of the challenges of trying to create bitcoin-based financial products -- whether on Bitcoin or through other L1's as side chains -- is the same for Ethereum monetary policy: is it worth competing on someone else's territory? Ethereum (and other L1s) are certainly ahead of Bitcoin as composable and expressive financial platforms, and it's not necessarily clear that defI-type products were part of bitcoin's ethos in the first place.


2) Emerging environment for Bitcoin L2 innovation: Blitz


As we discussed earlier, Taproot helps increase the privacy and scalability of the Lightning network. While this seems to have little to do with the lightning network, which is still in its infancy, increasing privacy could be crucial, especially if lightning is adopted in the mainstream.

By every relevant metric, the Lightning network is entering the first phase of exponential growth. The most notable use case is el Salvador's recent adoption of the Lightning network for remittances. It was recently reported that remittances through Chivo wallets account for nearly 5 percent of the country's annual GDP, based on a single day's activity. As part of an effort to promote the country's adoption of Bitcoin for remittances, El Salvador has set up a $150 million fund to support the free conversion of bitcoins into dollars.

The lightning network's growth arc is longer, and it's not just limited to Latin America. In 2019, the number of unique lightning network channels roughly doubled, from 15,939 to 27,900. As of October 17, 2021, there are now 73,715 unique Lightning network channels. This is a strong indicator for the Lightning network to adopt, as these channels represent new nodes connected to BITCOIN L2.

The multi-year growth trajectory of the Lightning Network

Network capacity has also soared this year, from a base volume of about 1,000 BTC in January to more than 3,000BTC in October, with growth rates spiking in August. While the concept of network capacity is not comparable to DeFi TVL, given that they serve fundamentally different use cases, lightning networks could be in the early stages of parabolic growth, similar to DeFi growth in ETH terms in the second half of 2020.

BTC and DOLLAR-denominated lightning network capacity capture the exponential growth of the Lightning network in the second half of 2021

Developer experiences and tools around lightning Network are also in their infancy, but are maturing rapidly. Led by Matt Corallo, Square Crypto is building a Lightning Development Kit (LDK). LDK supports wallet and application developers who want to create "custom experiences" on the Lightning network through rust-based development environments, language bindings, and demo applications.

Strike is also building an API and mobile application that will allow users to access the Lightning network without interfering with bitcoin. Instead of buying Bitcoin to take advantage of the Lightning network's instant settlement layer, users can access the Lightning network directly using fiat currency. Twitter will create a tipping feature through the Strike API.

In theory, Strike could become not only the way any Web2 merchant, marketplace or developer interacts with the Lightning network, but also the way the Lightning network penetrates popular applications such as social media or online games. That makes Lightning network a competitor to the Internet's native Visa, allowing anyone using the network to conduct transactions around the world for next to nothing and in real time. Strike was announced in March after pro-bitcoin legislation was introduced in El Salvador and quickly became the most downloaded mobile app in the country.

Another company working on lightning Network innovation is Breeze, which focuses on improving mobile accessibility of lightning network and allows users to "create channels in real time." With Breeze, users can run Lightning Network Node nodes on their mobile devices, using the one-click solution to become merchants.

While most markets are focused on the rapid innovation of Ethereum L2, the environment for Bitcoin L2 is rapidly evolving. We are eager to focus on BITCOIN L2 after Taproot and monitor the relationship between new privacy features and the speed of lightning network adoption.

Do users care about the ability now enabled by Schnorr to take up less on-chain space and create multi-party channels? Do these privacy features contribute to the value proposition of a colocation focused company like Strike? If the El Salvador Lightning network experiment is successful, will better privacy make other potentially larger nation states more likely to adopt similar practices?

We assume that most bitcoin innovations can survive on L2. In theory, bitcoin could become a competitor to Visa, with the new product reinvigorating bitcoin's ability as a medium of exchange. A post-Taproot innovation-friendly attitude is likely to accelerate interest from capital and developers in the BITCOIN L2 market.

This emerging L2 environment shows that Bitcoin can dynamically switch between narratives without changing the underlying layer.

Block wars force users to choose one identity: store of value (SoV) or medium of Exchange (MoE). It's one or the other; Bitcoin or Bitcoin Cash. More and more users and developers will have a choice between the two, increasing if more countries adopt El Salvador's approach, or if existing bitcoin holders spend their coins more openly due to improved tools, experiences, and the privacy provided by Taproot.




In 2021, bitcoin became a political asset. In the United States, the politicization of Bitcoin has taken a more obscure path, but it continues to drive mainstream adoption. Bitcoin's political narrative is no longer a cypherpunk utopian dream: it is part of an international political dialogue that is slowly being adopted by emerging politicians who are aware of the web's growth trajectory. In the context of crypto L1 and L2 narratives and international politics, Bitcoin is slowly shedding the isolationism of its first decade.

As bitcoin has become a political asset, the dynamics of bitcoin governance have become increasingly important. Can Bitcoin survive hidden enemies? Can a complex coalition of technocrats, political ideologues and developers now lobby for change through irresistible mainstream pressure?

On the other hand, how does Bitcoin adapt to these dangerous pressures -- survive them -- while remaining open to edge improvements like Taproot? Can post-Taproot Bitcoin accept undisputed edge evolution? Can bitcoin agree to changes that make it better, but still refuse to lower its defenses against the slide of technological utopianism?

While today's market arguably underestimates the value and complexity of bitcoin's governance and innovation narrative, we believe this is about to change. The next few years of Bitcoin could represent a new chapter in the pendulum between innovation and extreme stability, leaving behind the legacy of 2017's civil war and inviting new macro forces to join the network.

As technological progressives gain a foothold, hardliners will need to strengthen their arguments. They will need to constantly re-examine the bitcoin political archive. Bitcoin's ability to defend itself will require a sustained recovery, rather than giving up on change without participating in the political process. Stakeholders must remain vigilant and engaged, re-examining the gaming process behind the formal BIP and the extensive informal and often hotly debated literature.

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