Hello as always and welcome to today’s edition of Overbit Insights.
Though a lot of these stories are dedicated to news around markets, today’s edition kicks off with some news on the technological front.
Miners all across the world have just authorized the first Bitcoin update in four years, dubbed ‘Taproot’.
Unlike Bitcoin's 2017 upgrade, which was dubbed the "Last Civil War" due to the bitter ideological difference that divided followers, Taproot enjoys nearly unanimous support, in part because these upgrades are generally gradual enhancements to the code. There’s a lot of technical jargon behind the large upgrade itself, which mostly revolves around Bitcoin adding support for new types of signatures, ones that will allow for greater flexibility and privacy on the Bitcoin blockchain.
Simply put, Taproot aims to make the Bitcoin blockchain more programmable.
“The most important thing for Taproot is...smart contracts,” said Fred Thiel, CEO of cryptocurrency mining specialist Marathon Digital Holdings. “It’s already the primary driver of innovation on the Ethereum network. Smart contracts essentially give you the opportunity to really build applications and businesses on the blockchain.”
"Taproot matters, because it opens a breadth of opportunity for entrepreneurs interested in expanding Bitcoin's utility," said Alyse Killeen, Founder and Managing Partner of Bitcoin-focused venture firm Stillmark.
As more programmers create smart contracts on top of Bitcoin's blockchain, Bitcoin has the potential to become a bigger participant in the realm of DeFi, or decentralized finance, a word used to describe financial applications that eliminate the intermediary. The update will likely not go live on the entire network until November, so time will tell if Bitcoin developers will be able to catch up to the world of DeFi in that time.
We'll be discussing the dangers of quantum computers and the blockchain in our next story of the week. Even though quantum computing is still in its infancy, governments and private-sector organizations such as Microsoft and Google are attempting to make it a reality.
Quantum computers will be several million times quicker than ordinary computers. Within a decade, quantum computers may be powerful enough to breach the cryptographic security that secures cell phones, bank accounts, email addresses, and, yes, Bitcoin wallets.
Fred Thiel, CEO of cryptocurrency mining specialist Marathon Digital Holdings, said, "If you had a quantum computer today, and you were a state sponsor – China, for example – most probably in about eight years, you could crack wallets on the blockchain,".
Much of the world currently operates on asymmetric cryptography, in which individuals utilize a private and public key pair to access services like email and crypto-wallets.
"Every single financial institution, every login on your phone — it is all based on asymmetric cryptography, which is susceptible to hacking with a quantum computer," Thiel stated. Thiel is a former director of Utimaco, one of Europe's leading cryptography firms that has worked on post-quantum encryption with Microsoft, Google, and others.
The public-private key pair enables users to generate a digital signature using their private key, which anybody can validate with the associated public key. This digital signature is known as the Elliptic Curve Digital Signature Algorithm in cryptocurrencies such as Bitcoin. It assures the rightful owner may only spend that Bitcoin.
Theoretically, someone using quantum computing could reverse-engineer your private key, forge your digital signature, and subsequently empty your Bitcoin wallet. "If I was dealing in fear-mongering … I'd tell you that among the first types of digital signatures that will be broken by quantum computers are elliptic curves, as we use them today, for Bitcoin wallets," said Thorsten Groetker, former Utimaco CTO and one of the top experts in the field of quantum computing.
Even though quantum computing is quite a few years or decades out, it's just another example of an essential threat Bitcoin, and other cryptocurrencies face.
In the meantime, thanks for reading and we look forward to seeing you next week with Overbit Insights.