Bitcoin's most significant update in four years has just occurred - here's what's new.

The first bitcoin update in four years is now available. It is a rare instance of agreement among stakeholders, and it is significant for the world's most popular cryptocurrency.

The Taproot upgrade promises improved transaction privacy and efficiency – and, more importantly, it opens the door to smart contracts, which can use to eliminate intermediaries from transactions. With the significant ideological rift between adherents, Taproot enjoys near-unanimous acceptance, in part because these modifications entail very gradual code enhancements.

A large portion of bitcoin's transformation has to do with digital signatures, which function similarly to the fingerprint individual leaves on every transaction, which generates a signature from the private key that controls a bitcoin wallet and assures that the rightful owner may only spend bitcoin will lose the privacy of your bitcoin address on the public blockchain. However, simple transactions will be indistinguishable from those requiring numerous signatures.

In effect, this implies improved privacy because your keys will not be exposed as much on the chain. These enhanced signatures are also a game-changer for smart contracts, which are self-executing agreements that exist on the blockchain. In theory, smart contracts may be used for nearly any form of transaction, from monthly rent payments to vehicle registration.

Taproot reduces the number of smart contracts taken upon the blockchain, making them cheaper and smaller. Killeen states that this increased functionality and efficiency have "mind-blowing possibilities."

May now form Smart contracts on both the bitcoin core protocol layer and the Lightning Network, a bitcoin-based payments network that allows immediate transactions. Smart contracts performed on the Lightning Network often result in quicker and less expensive transactions, bitcoin might become a more significant player in the DeFi space, or decentralized finance, a word used to describe financial applications that eliminate the intermediary.

Currently, ethereum is the blockchain of choice for these apps, often known as "dApps."

Many community members also recall the terrible migration of 2013, when an upgrade went wrong caused bitcoin to split in two.