Tag: Bitcoin power consumption

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Cryptocurrencies

Bitcoin will never be the same: Taproot Upgrade Proposal ‘Nearing Completion’ 

It has been a while since the Bitcoin platform received a major upgrade. There is, however, a major upgrade proposal in the works that is nearing public launch. The proposed bitcoin soft-fork designed to improve the platform security and boost user privacy is already moving through the developer feedback phase and maybe getting ready for public launch soon.

It has been a while since the Bitcoin platform received a major upgrade. There is, however, a major upgrade proposal in the works that is nearing public launch. The proposed bitcoin soft-fork designed to improve the platform security and boost user privacy is already moving through the developer feedback phase and maybe getting ready for public launch soon.

It has been a while since the Bitcoin platform received a major upgrade. There is, however, a major upgrade proposal in the works that is nearing public launch. The proposed bitcoin soft-fork designed to improve the platform security and boost user privacy is already moving through the developer feedback phase and maybe getting ready for public launch soon.

The Bitcoin Taproot/Schnoor upgrade proposal, originally revealed in 2018 by Greg Maxwell, one of the core developers of Bitcoin, is a long-anticipated technical upgrade. It is touted to improve not only the security of the network and the privacy of the users but also the scalability, fungibility, and script innovation in the blockchain platform.

What is the Bitcoin Taproot proposal?

Taproot and Schnorr updates, or simply Taproot, is Bitcoin’s next greatest technological breakthrough that promises ‘a new world of possibilities’ for the digital asset. The proposal remains highly sensational and has been subject to extensive deliberation in the Bitcoin community because it is a major platform upgrade with great implications on transaction architecture and performance.

It is designed to improve Bitcoin’s privacy and boosts platform scalability by making all the transactions on the platform appear the same to an outside observer, regardless of the complexity of the transaction details. The Schnoor update, on the other hand, is a code modification that aggregates transaction signatures to make it possible to implement Taproot.

Here is how Taproot works; in the Bitcoin network, transactions are validated using public-key cryptography. Currently, transactions are validated using an Elliptic Curve Digital Signature Algorithm. This algorithm has a number of glaring shortcomings, especially when it comes to transaction privacy and platform fungibility. Taproot is designed to fix these shortcomings by concealing specific types of transaction details from outside observers, in a way, standardizing and simplifying the details that are visible to outsiders.

For instance, when a transaction has a hot wallet, a cold wallet, and details of a trusted third party wallet key, all these are aggregated into a single Schnoor signature rather than being bundled as separate codes into a transaction. The single Schnoor signature can then singly be used to validate a Taproot output key.

The Taproot output key will be a single code that represents all the complex codes that would otherwise present a transaction as a collection of different keys. An outside observer will only see the single output and would not need to bother with finding out which two keys were used to generate it.

Aside from improving the privacy of the platform, this upgrade would also significantly reduce the size of the transaction file. This goes a long way to reduce the Bitcoin transaction fees as well as making the Bitcoin network more scalable. If you are familiar with the limitations of the Bitcoin platform, you will appreciate that any upgrades implemented to make it more scalable are crucial, especially if it does not involve hard-forking the platform.

Will the Taproot upgrade bring forth a BTC revolution?

When it was first proposed two years ago, the Taproot proposal triggered heated discussions among Bitcoin developers and in the general Bitcoin community. Throughout the time the upgrade was in development, the proposal moved through the Bitcoin ecosystem feedback phase as developers made their recommendations and reviewed possible changes to the proposal draft.

On December 17th, during the final scheduled meeting of the Taproot review group, an update on the project was made public. Bitcoin Core developer Pieter Wuille revealed that the upgrade proposal was ‘nearing completion’ and that developers were already putting the final touches that addressed all the comments and suggestions collected by the review group.

This upgrade could be a major turning point for Bitcoin – despite it not requiring a hard fork – because of the improvements, it makes to the system. When implemented, the Taproot/Schnoor upgrade could accelerate the process of block validation by as much as 250% and cut transaction fees by as much as 30% to 75%, according to Square Crypto product manager Steve Lee. Lee made this prediction in a presentation in the summer of 2019, and it is consistent with what other experts have had to say about the subject.

There is a good chance that the Taproot update could be the upgrade that revolutionizes the Bitcoin platform considering the limitations that are currently holding it back. On top of the list of problems plaguing BTC is scalability, which can be attributed to the Proof-of-Work (PoW) consensus it uses. PoW is so power-hungry and so slow that it limits BTC to between 3.3 and 7 transactions per second (TPS).

Visa, for comparison, processes around 1,700 transactions per second and may be capable of processing as many as 24,000 transactions per second. If Bitcoin is to ever scale globally and match this transaction processing speed, then a major change has to be made. However, there is little that can be done to improve from the current TPS without hard-forking the platform. The Taproot upgrade goes a long way to boost the platform TPS without the need to switch to a different consensus such as Proof-of-Stake (PoS).

How Taproot improves Bitcoin fungibility

Fungibility is an economics term that refers to the property of an asset whose individual units are standardized or essentially interchangeable. It means that each part that makes the whole is indistinguishable from another. In this case, Taproot improves Bitcoin’s fungibility by making all the outputs for spending look identical.

According to Kento U of Coinmonks, Taproot is Bitcoin’s next big update largely for the fungibility benefits it brings to the platform. Being a scheme for signing transaction scripts, Taproot’s most functional role is to homogenize the transaction output from a content perspective. When Bitcoin transactions are made to look exactly similar from the blockchain explorer, it guarantees that the Bitcoin network will be more secure since it will not be easy to tell one transaction from another at a glance.

There is also another great benefit to rolling out the Taproot update on the Bitcoin network; it opens up the possibilities for inscription innovation by allowing for complicated arrangements of keys and signatures in a transaction. This will effectively eliminate the limitation of the number of scripts that can be used to spend Bitcoins.

Why is Taproot update a big deal to the community?

A very small percentage of Bitcoin users pay close attention to system updates on the Bitcoin network, yet they often turn out to be the most bullish indicators for the Bitcoin currency. Most people still mistakenly look at institutional investors, Bakkt futures, and bankster instruments for indicators, yet all these and many other common events rarely ever affect the platform on which Bitcoin runs. The Taproot upgrade has a direct impact on the scalability, decentralization features, and fungibility of Bitcoin, which influence its long-term value.

It is commendable, however, that the interest the community has on this latest update proposal is gaining momentum and attracting wide interest. Developers working on the update and members of the Taproot review group have expressed optimism that the new development has generated impressive interest in the network as it moves to the next step of development.

When the draft is formally proposed as a Bitcoin Improvement Proposal, and a pull request to the Bitcoin Core pulled, the Taproot implementation is expected to undergo another round of reviews and suggestions before it is finally merged with the main branch if all goes well.

Members of the Bitcoin community still have the opportunity to analyze and suggest improvements to the upgrade while the proposal is still in the review phase.

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Crypto Daily Topic

Bitcoin’s Thirst for Power: Why it Uses a Quarter Percent of the World’s Electricity?

If you thought the report by Nature.com a few days ago that it takes more energy to mine Bitcoin than mining gold of similar value was the most surprising thing

If you thought the report by Nature.com a few days ago that it takes more energy to mine Bitcoin than mining gold of similar value was the most surprising thing

If you thought the report by Nature.com a few days ago that it takes more energy to mine Bitcoin than mining gold of similar value was the most surprising thing you read about Bitcoin this week, you’re in for another surprise!

The amount of power Bitcoin mining consumes has been a growing concern over the years, but it has reached a point where it is plainly alarming. Today, it is estimated that Bitcoin consumes as much as a quarter percent of the world’s electricity supply, according to a tweet posted by James Todaro, the Managing Partner at Blocktown Capital and Columbia University Alumni.

James points out that humanity is justified to devote such a significant amount of resources to an asset because of how important it is to our future. If anything, he implies, Bitcoin as a technology asset is here to stay, and such assets as rat poison, tulips, beanie babies, and others that have already disappeared cannot be compared with Bitcoin.

Why Bitcoin is so power-hungry

You already know that Bitcoin runs on a blockchain network. You probably also know that at the core of its network is the Proof-of-Work consensus, a protocol that requires work in terms of data processing by a computer that takes time in order to validate blocks. Miners, a term that refers to the owners of computers that do the processing work, are rewarded with a certain amount of Bitcoins for every block validated.

Bitcoin’s Proof-of-Work consensus verifies the legitimacy of each block of blockchain transactions added to the chain using complex mathematical processes that uses the computer’s processing capabilities. In the early days of Bitcoin, mining was an easier process that required very little processing power. This is why anyone with a half-decent computer could use it to mine the coins back in the day.

With time, as the Bitcoin network scaled and grew in size, it demanded more processing power to validate blocks of transactions. This meant that the more powerful computers aptly known as ‘rigs’ had to enter the mining scene to meet the platform’s thirst for processing power. Mining Bitcoin became expensive because these powerful machines are not only expensive to acquire, but also use up a lot of electricity. It requires tremendous processing power to validate blocks of transactions in the shortest time possible.

How much power is 0.25% of the global supply?

Current statistics on the Digiconomist Bitcoin Energy Consumption Index show that Bitcoin mining uses as much as 79.79 terawatt-hours (TWh) of electricity annually, which is comparable to the amount of power consumed by Belgium estimated to be 82.1 TWh and higher than that of the Philippines which stands at 78.3 TWh annually.

Going by Digiconomist estimates, the amount of power the Bitcoin network gobbles up is in the upwards of $3.66 billion, but it generates revenue estimated to be $5.72 billion, a cost percentage of 63.9%. This is a lot of investment in a single asset, especially since the global adoption of the Bitcoin is still relatively low. While more people are appreciating and embracing cryptocurrency, and in particular Bitcoin, the uptake is generally gradual. It is estimated that it may take as long as 24 years for half of the global population to start using Bitcoin for regular payments.

While these figures may look scary, it is important to note that the Bitcoin technology platform has merit and is expected to ultimately grow to become the world’s primary form of payment. Considering that Television, the world’s most power-hungry electronic device now used in most households, uses as much as 8% of the total global electricity, Bitcoin’s 0.25% is not a figure to worry about at this point.

Effects on the environment

Bitcoin mining uses electricity that is not always harvested from renewable sources. If the figures on the Digiconomist’s Bitcoin Energy Consumption Index are anything to go by, the Bitcoin mining industry has a carbon footprint of 34.73 metric tonnes (MT) of carbon dioxide (CO2), a figure comparable to the carbon footprint of Denmark. It also produces as much as 10.62-kilo tonnes (KT) of electronic waste that is made up of discarded electronic devices that rarely ever make it back to recyclers.

In many ways, Bitcoin is like gold. It cannot be arbitrarily created, and its supply is limited. It was easy for the Nature magazine to compare Bitcoin mining to gold mining, not just because of the amount of resources it requires, but also because it takes increasingly greater effort as more of it is mined. Since the supply of Bitcoin is limited to 21 million, it will get to a point when miners will have unlocked all the available supply, unless its original protocol is altered to allow for more.

Presently, about 18 million Bitcoins have been mined, leaving just under 3 million left to be mined. It will cost more in terms of electricity consumption to mine the remaining quantity compared to what has already been mined. As such, it is expected that Bitcoin mining rigs will continue to demand more power until the last coin is mined sometime in the year 2140 if the bitcoin network protocol remains unchanged between now and then.

Conclusion

In 2015, Adam Hayes published a paper titled “A Cost of Production Model for Bitcoin,” in which he compares the production of Bitcoin to a competitive market where the miners “produce until their marginal costs equal their marginal product.” Since the marginal costs, in this case, is electricity costs (once the initial costs of equipment and infrastructure have been settled), he concludes that the costs of electricity will determine the future of Bitcoin mining.

It is expected that within a few months to years, Bitcoin will need as much as 1% or more of the total global electricity supply. However, all this will happen only if the energy does not become prohibitively expensive as to cost more than the miners will earn from the Bitcoins they mine.