Bitcoin has received its first major upgrade in years, one that improves smart contracts on the network, increases user privacy, and reduces transaction costs. With the Taproot Soft Fork activated now, a peek behind the curtain to see potential future upgrades can help investors and enthusiasts understand where the most popular cryptocurrency could go next.
The Taproot Soft Fork has finally been turned on for the Bitcoin network, an upgrade that focuses on privacy and makes it easier to scale in the future. It’s the first time in four years that the network has had an upgrade of this magnitude, with the last major soft fork being SegWit, reports CoinDesk.
While the work continues for external users to deal with Taproot changes as well as potential upgrades that Taproot still allows in the hopper, such as the Bitcoin network gives a good idea of what to expect in the future.
One soft fork that developers are considering is called SIGHASH_ANYPREVOUT and would allow transactions to be signed without the need for any specific expense (the coins being sent) upfront. One problem users are now encountering that this particular update could help alleviate is the need for the Lightning Network – a network overlay that optimizes the speed and scalability of Bitcoin transactions while reducing costs – to transmit current data . If this data were lost, funds could be lost with it and the update would work to prevent that from happening.
Another major change is the introduction of covenants, which would change the code of the blockchain to limit the number of funds that can be sent by a user. This type of restriction would help increase some level of security as agreements would allow the creation of “vaults”, a feature that would allow users to retrieve funds even if they were stolen. Other uses for covenants could include optimizing flow and reducing congestion, as well as sewer factories – a mechanism by which multiple parties agree to a contract that creates payment channels for them to interact outside of the network, as long as all parties agree to the exchange – and so reducing the amount of data they use and saving money on fees.
Sidechains and drivechains are both potentials for future updates, although sidechains are much more likely to be activated. Sidechains are blockchains that are attached to the side of the Bitcoin blockchain and enable experiments and the development of new technologies. If Bitcoin is the basic house, then sidechains are the second story, which can look in a number of different ways. Sidechains could be a direct competition for Alt-Coins, as new technologies could be developed directly in the network on a sidechain instead of requiring an independent Alt-Coin.
Drivechains, on the other hand, enable the creation, deletion, sending and receiving of bitcoins from sidechains and can be used on the sidechains an unlimited number of times and in a novel way. Transferring bitcoin between the sidechain and the main blockchain would not use verifiable evidence, but instead would transfer the bundle in a process that takes months. It is a system that would empower miners as they could instantly collect fees from the chains without the need for additional software, thus giving them more power within the Bitcoin network. Because of the perceived power imbalance, developers think the likelihood that drive chains will be implemented is slim.
Invest in the future potential of Bitcoin with BITF
Bitcoin prices are volatile right now, but the future looks bright for the blockchain, especially as the latest soft fork takes root. For investors looking for a commitment to the futures market, the Valkyrie Bitcoin Strategy ETF (BTF) is a great way to invest in bitcoin network innovation without investing directly in cryptocurrency.
BTF is an actively managed fund that invests in Bitcoin futures and has no direct exposure to Bitcoin itself. The fund offers investors dual protection through the CFTC regulation of the futures markets and the protection built into the fund itself as the 1940 Act ETF. If possible, BTF only trades in cash settled Bitcoin futures contracts in the “front month” or on the closest expiration date.
BTF’s sub-advisor is Vident Investment Advisory and the futures contracts are invested indirectly through a Cayman Islands subsidiary to avoid the need for a K-1 for investor tax purposes, a common practice. The fund also uses collateral investments to obtain liquidity; This includes cash, cash-like instruments, or high quality securities such as money market funds, US bonds, and other sources.
BTF has an expense ratio of 0.95%.
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