23rd October 2021 > > TapRoot.

tl;dr

TapRoot brings smart contracts and DeFi to the bitcoin network.

Market Snap

Market Wrap

We are seeing a small correction following the exuberance expressed for the first BTC ETF in the US.

Markets never go in a straight line so none of us should be over surprised by this development.

Futures markets remain a touch overleveraged, but the sell-off has been reasonably well-behaved so the trigger points for long liquidations (leveraged and unleveraged) are at levels far below those predicted by the techies who have been volubly claiming that $62k was a key support.

Wrong again chaps.

Curious Cryptos’ Commentary – TapRoot – ** THIS IS REALLY IMPORTANT **

The code for all cryptos is in a state of constant flux and improvement. The most high-profile example is the move to ETH 2.0 via Beacon Chain and sharding.

ETH 2.0 has several objectives, including a dramatic improvement to the transactions per second throughput, lower fees, burning of ETH as part of every block to reduce its natural inflationary tendency, and – crucially for the green doom mongers - moving from Proof of Work (POW) to Proof of Stake (POS).

Less attention has been paid to TapRoot, a development of the BTC code.

Hailed as the biggest change to the core BTC code since SegWit (don’t worry, you don’t need to try to understand old tech improvements) in 2017, Taproot is scheduled to go live in November this year, after 90% of all miners have signalled their acceptance of the code changes necessary to implement TapRoot.

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TapRoot will bring smart contracts and Decentralised Finance (DeFi) to the BTC network.

This is potentially huge for the growth and adoption of BTC over and above its relatively limited and expensive utility as a means of payment, and its utility as a store of value.

TVL (Total Value Locked) is approximately $200bn over all DeFi protocols and chains, with about 60% or so on the Ethereum blockchain, and the remainder across several Layer 2 solutions.

BTC has a huge advantage over all other cryptos with market dominance around 46% due to its first mover status.

DeFi has been an incredible success in a very short space of time. It is still growing with the continual launch of new platforms, new protocols, new products, and new ideas. But it has largely passed BTC by because of the costs and slow speed of trying to execute smart contracts via BTC Layer 1 workarounds.

I think it is a safe bet to say that once these constraints are removed, DeFi on the BTC blockchain could be equal in size to that of all other DeFi protocols.

If you agree with that assessment – and some might think it a bold call – then following the implementation of TapRoot we will see additional demand for $200bn of BTC in the short-term, and much bigger numbers than that in the long-term.

With a current market cap of $1.2 TRILLION, an additional $200bn gives a 17% boost to the price of BTC, worth roughly an extra $10k per BTC to today’s price.

And that is merely the start of the TapRoot Revolution.

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There are some DeFi protocols front-running this expected surge of interest in BTC DeFi. Sovryn, and its native token SOV, is a notable example (NOT investment advice):

https://live.sovryn.app/

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TapRoot is also bringing a greater degree of privacy to the BTC network with the use of Schnorr signatures. For the mathematically talented who are steeped in cryptographical knowledge, here is the wiki:

https://en.wikipedia.org/wiki/Schnorr_signature

Makes no sense to me either.

I am told that this methodology allows for the processing of transactions in a block to be concealed by the combination of random public keys following authentication of the signing by a private key.

At least, that is what I think I have been told.

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I am in two minds about this aspect of TapRoot.

Some months ago, I sold out of all my privacy coins (XMR etc.) as the US regulatory authorities had started making noises about their disdain for cryptos which had been designed SOLELY for the purposes of privacy.

The tax authorities will always know the identity of someone who buys a privacy coin on a centralised exchange.

I have nothing to hide from the taxman, but with literally thousands of transactions over the years, and 10s of different coins in my portfolio, it is easy to make mistakes.

The taxman disapproves of mistakes, even if they are genuine errors.

Discretion being the better part of valour, I decided to sell out of my privacy coins to avoid being a natural target for HMRC.