Adoption has grown significantly, both on institutional balance sheets, in place of cash treasuries, in government pension funds and more broadly in payments and beyond, and while some countries continue to adopt a cautious or outright hostile stance to the world’s first and largest cryptoasset, others like El Salvador have made historic strides to integrate bitcoin into their national currency models.
During this quarter Bitcoin reached an all-time high of over $63,000 in mid-April, before losing half its value to end the quarter at $35,069.
One reason for the fall in price has been he continuing negativity toward crypto from the Chinese Government. An outcome from this is the beginning of a mass migration of cryptomining power. Mining pools in regions outside of China — like Foundry USA — are expected to be among the biggest winners of this shift, and access to renewable sources of energy are expected to quickly take precedence over coal and fossil fuels.
As adoption has grown, Bitcoin has rightly faced criticism of its proof of work consensus algorithm for that mechanism’s contribution to outsize energy use and, by extension, climate change.
Leading a response to environmental concerns, ETC Group was the first crypto provider to announce a carbon neutral policy for its Bitcoin security.
“Companies benefiting from cryptocurrencies like bitcoin are right to take meaningful steps to address climate concerns. We are pleased to see that bitcoin miners are increasingly sourcing renewable electricity, but we at ETC Group feel it is important to do more and act now. That’s why we have launched our initiative to calculate our bitcoin product’s carbon footprint and offset it with high quality projects curated and monitored by some of the world’s most respected climate action companies.” Bradley Duke, CEO, ETC Group
Additionally, institutionally-focused products like ETC Group’s Bitcoin ETP (BTCetc) have announced plans to offset the carbon emissions associated with that investment product’s mining and transaction activities. The creation of a Crypto Climate Accord has attracted the sector’s biggest names in a bid to green the industry and promote more transparent reporting of energy use.
Bitcoin Core 0.21.1 was released on 1 May 2021, with activation code for the Taproot soft fork (Bitcoin Improvement Proposal 341), Schnorr signatures (BIP340) and tapscript (BIP342). Version 0.21.1 is the first minor update to the 21st major release of Bitcoin Core, the original Bitcoin software client launched by Satoshi Nakamoto in 2009.
Taproot will come into force in November 2021 and sets the stage for several important functionality upgrades on the Bitcoin network, including efficiencies relevant for creating smart contracts on the base layer and higher layers, for example its payment channel, the Lightning Network.
Taproot is a backwards-compatible soft fork of the Bitcoin network that is essentially a collection of many long-awaited upgrades. In total, it is designed to improve wide-ranging scripting capabilities and generate improved privacy on the Lightning Network. Taproot enables Merkelized Abstract Syntax Trees (MAST), which allow for smaller transaction sizes, and larger smart contracts by only revealing the relevant parts of a smart contract when spending occurs.
Secondly, BIP340 enacts Schnorr signatures: provably secure cryptographic digital signatures. They come with advantages over Bitcoin’s current ECDSA (Elliptic Curve Digital Signature Algorithm) algorithm, including much-simplified signing and verification. They are linear, which allow developers to add a host of additional features to Bitcoin, the result of which could be anything from cross-chain atomic swaps to sidechain channel creation and scriptless scripts — a way to execute smart contracts off-chain.
“Schnorr signatures are also useful in multi-signature transactions where multiple parties are involved. With the Schnorr signature setup, multiple signers can jointly create a public key and then sign together as one, which again improves scalability and privacy compared to each public and private key [needing] their own individual signatures.
Multi-signature transactions will be shown on-chain just like a transaction with one signature...the aggregated signatures make for smaller transaction sizes, which saves space and improves scalability.” BRD Blog
When implemented on the Bitcoin network, Schnorr signatures are widely expected to improve scalability and privacy on the core protocol.
The net result of these upgrades will be to inject some much needed momentum into Bitcoin’s technical prowess.
Bitcoin’s has been on a rollercoaster ride in Q2 2021 with some huge adoption and institutional investment news, married with significant price volatility. But has the crypto ecosystem outgrown its founding member?
A relatively small increase in the number of daily active addresses — just 11% year on year — could support this assertion, as interest and excitement about moving value on-chain shifts elsewhere. This could be attributed to a larger proportion of accounts simply holding Bitcoin and waiting for its value to rise, however.
Bitcoin is old technology and has largely been superseded by more recent blockchain innovations, so the prevailing narrative goes. Today, it is perhaps seen as more of a static store of value and kind of digital gold, than a thriving ecosystem capable of supporting some of the more exciting and useful functionality prevalent on other networks like Ethereum or Solana.
However, the recent technical upgrades noted above repudiate that narrative and experts in the Bitcoin space are beginning to push back on this theme with more force.
Indeed, the introduction of better smart contract functionality, the use of the Lightning Network inside a sovereign state money system and the possibility of attracting greater numbers of developers to build out its app ecosystem — which could include Bitcoin DeFi — rivals anything to come on Ethereum and there is clearly potential here for reconfiguration of the story behind Bitcoin to develop as we progress deeper into the 2020s.
One key point to note is that global financial and political institutions are not behaving as though Bitcoin could be regulated out of existence, as they have in the past. Rather they are coming up with solutions to ensure that the structurally-important cryptoasset lives on in perpetuity.
Another innovation that we may see widely adopted in companies paying employees in Bitcoin:
“By offering to pay employees in cryptocurrencies, companies may attract workers looking for a forward-thinking employer by distinguishing themselves as early tech adopters that offer compelling benefits and compensation. Companies with remote or international contractors or employees might also appreciate the ease of making cross-border payments in cryptocurrency. Who needs to pick among international currencies and worry about exchange rates when anyone can send and receive Bitcoin in minutes with nothing more than a cell phone?” Hassan Aburish, Nicholas Hulse and Erica Wilson, Fisher & Phillips LLP
Disclosure | Copyright © 2021 ETC Group. All rights reserved
Credits: Article layout originally inspired by James Wang
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