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Bitcoin is both a currency and a technology. In terms of currency, Bitcoin is carefully designed so that once verified, the transaction is immutable and always exists in the blockchain. But that doesn't mean the technology is static. Thanks to a vibrant developer ecosystem, the Bitcoin protocol has steadily improved year after year.

The decentralized nature of Bitcoin poses a unique challenge to the process of improving the underlying technologies that power the protocol. To avoid anarchy, Bitcoin's core developers have adopted a specific code revision process. Since there is no central authority to indicate which updates should and should not be completed, the change depends on the proposal supported by the developer community. Once the proposal is implemented into code, nodes on the network must accept the new changes by upgrading their client software.

Investors should be aware of important update proposals, as major changes in Bitcoin could affect the price of BTC. Controversial proposals may even lead to hard bifurcations, leading smaller groups to break up and form a new version of the blockchain (because the SegWit2 proposal inspired the creation of bitcoin cash).

Suggestions for improving Bitcoin

Bitcoin improvements are usually submitted to the GitHub repository in the form of Bitcoin improvement proposals (BIP). BIP is a design document that provides ideas for new bitcoin features or revisions to existing ones. Only major changes can get your own BIP. The author of the document usually polls the bitcoin community to see if there is a good chance of acceptance before submitting the BIP for the formal approval process.

If the community supports it to a large extent, the BIP author will submit the document to the Bitcoin developer mailing list for review. BIP goes through several phases:

Draft (draft), BIP has been submitted.

Proposed, BIP has an effective implementation plan, and the author has a clear plan to put it into practice.

Final/Active (final / activated), the BIP proposal is ready to go live or has been applied.

Rejected/Withdrawn  , BIP has been rejected by the development community, or the author has withdrawn it from consideration.

Replaced/Obsolete (replacement / obsolete), which has been replaced by a new feature version proposed by BIP.

Here are the upcoming BIP, which could have a significant impact on Bitcoin users and investors in 2019. We will cover the following details in detail.

Standardized multiple transactions: partially signed Bitcoin transactions (PSBT)

Suppose you and two partners are running an investment fund, and your money is denominated in bitcoin. You want to make sure that at least two people need consent to make any investments and use your funds. Thanks to multi-signature addresses, you can guarantee this through encryption. On Bitcoin, you can create a multi-signature address of 2-of-3 to store your funds, and you need the private keys of two partners to authorize any transaction.

The current problem with multi-signature transactions is that there is no standard format in Bitcoin. For example, if you and your partner use different bitcoin wallets, those wallets may not support each other's signature formats, which will prevent transactions.

Andrew Chow's proposal to partially sign a bitcoin transaction (PSBT) could solve this problem. The proposal creates a transaction format that standardizes partially signed transactions across different wallet clients. This standard transaction format is like a jigsaw puzzle. To create a multi-signature transaction, you need different parts from each participant, and only now, with PSBT, the pieces of the puzzle can actually be put together. The new format allows groups to process transactions, even if not all users have access to complete UXTO (unused transaction output) records.

Efficient private transactions: Schnorr signature

Schnorr signature is a method of merging private key, public key and transaction signature into a single hash. This improves the efficiency and privacy of transactions, especially for multiple transactions (because it is no longer obvious whether there are multiple signers in the transaction).

Currently, the ECDSA signature used by Bitcoin is between 71 and 75 bytes. The Schnorr signature is 64 bytes, which is an improvement. But this is just the tip of the iceberg. After the unused transaction output (UTXO) model of Bitcoin, most Bitcoin transactions actually consist of several smaller inputs. At present, each input needs its own signature, and all signatures need to be included in the transaction, taking up space and resulting in higher transaction costs.

Schnorr signatures will allow a combined signature to represent all the signatures required by the transaction, resulting in an estimated 17% increase in block capacity and faster verification of transactions. These gains also apply to multi-signature transactions, where multiple signatures are currently required to access the transaction input.

Pieter Wuille recommends that adding a Schnorr signature to Bitcoin will include all of the above advantages, as well as two secondary advantages:

Fixed 64-byte signature encoding format.

Due to the standardized nature of the proposed signature format, the potential of batch verification.

Greater anonymity: Dandelion

Privacy is one of Satoshi Nakamoto's stated goals for creating bitcoin, but the currency is pseudonym rather than anonymous. This means that you can treat your wallet address as a pseudonym: anyone on the network can see all transactions related to your address, so if they can associate your true identity with your address, your privacy will be cancelled.

There are many ways to identify the real world. Currently on the Bitcoin network, when a transaction is sent to a node, it is then broadcast to other nodes on the network. This allows network analysis to be performed and transactions traced back to the original node. From there, it is relatively easy to trace the transaction to the IP address from which it came from, effectively identifying the user.

The Dandelion project hopes to solve this problem and make Bitcoin more private. Instead of broadcasting the transaction from the original node to the rest of the network, Dandelion starts with anonymity phase. At this stage, the transaction jumps to a random peer, which sends it to another random peer until the spreading or fluff phase. Every time a transaction jumps from one node to another, there is a 90% chance that the transaction will remain anonymous and jump to another node, and the probability that the transaction will enter the spreading phase is 10%, where it is broadcast to a node on the network.

Dandelion uses probabilistic randomization of the path taken by the transaction before it is broadcast to the rest of the network, which makes it impossible for the network to trace the transaction back to the original node, thus providing a higher degree of privacy to the network.

Brad Denby,Andrew Miller,Giulia Fanti,Surya Bakshi,Shaileshh Bojja Venkatakrishnan and Pramod Viswanath jointly submitted a Dandelion proposal and built a prototype version on a small version of the bitcoin network for testing. So far, the team has reported that it has not found any software conflicts.

Higher scalability: Merkelized Abstract Grammar Tree (MAST)

The blockchain uses a hash algorithm to encode and validate the transaction, generating a new hash each time the token moves from one place to another. Each new hash contains a code pointing to the previous hash, which means that information from a series of hashes can be stored in a single hash, greatly reducing the processing time and power required to process a series of transactions. This method of chaining hashes together is called a Merkle tree.

The Merkelized Abstract Syntax Tree (MAST) takes the Merkle tree a step further by combining the Merkle tree with the abstract syntax tree, which is a way to describe code by splitting code into individual components and mapping it to its dependencies. Combined with the Merkle tree, these individual components can be used to verify that each component belongs to the entire component. On Bitcoin, MAST will help reduce the size of transaction data by eliminating the need to include unused parts of the script in the bitcoin blockchain and allowing more complex use of the current space-constrained Bitcoin scripting language.

Bitcoin's blockchain size has doubled in the past two years, from about 100GB to 200GB, making it harder for people to run entire nodes. MAST will help slow the growth of blockchain.

Bitcoin developers have proposed two different ways to add MAST to cryptocurrencies. Johnson Lau's proposal BIP 114suggests that MAST.Mark Friedenbach,Kalle Alm and BtcDrak should be activated by using a script version of BIP 141. proposals BIP 116and 117would merge MAST without script versioning, require fewer consensus changes, and may make it easier to implement.

Side chain implementation: hash time locking contract

Significant progress was made in layer 2 development in 2018, such as side chains, a mechanism for moving token from one blockchain to another and back again. Side chain nodes are designed to perform most actual transaction processing, thereby reducing the load on the main bitcoin nodes. In theory, this will help achieve scalability and allow for more transactions without affecting the main blockchain. The Lightning Network is the most famous of the second tier plans, but it is not the only one under development.

Hash time-locked contracts (HTLC) are a way to create conditional payments in Bitcoin to make side-chain transactions more feasible. They are the core components of lightning networks.

With a layer 2 solution like Lightning, Alice may have an open payment channel with Bob, while Bob may have an open payment channel with Charlie. HTLC basically allows Alice to remit money to Charlie via Bob without having to trust Bob or Charlie.

The following is an example of how HTLC works in a payment channel system:

1. Alice opened a payment channel for Bob and Bob opened a payment channel for Charlie. two。 Alice wants to buy 1000 satoshis from Charlie. 3. Charlie generates a random number and generates its SHA256 hash. Charlie gave the hash to Alice. 4. Alice used her payment channel to pay 1000 satoshis to Bob, but she added the hash that Charlie gave her and an additional condition: in order for Bob to ask for payment, he had to provide the data he used. Generate that hash. 5. Bob uses his payment channel to pay Charlie Charlie 1000 satoshis,Bob with the same terms as Alice's payment to Bob. 6. Charlie has the raw data (called the preview image) used to generate the hash, so Charlie can use it to complete the payment and fully receive Bob's payment. By doing so, Charlie must enable Bob to use the front mirror. 7. Bob uses the front image to complete the payment of Alice. Source: [Bitcoin Wikipedia] (https://en.bitcoin.it/wiki/Hash_Time_Locked_Contracts)

Sean Bowe and Daira Hopwood's proposal for a hash time-locked contract includes a script in which either party to the deal can recover the money if the other party does not cooperate. It sets a time limit for transactions: if the buyer does not spend money when the limit expires, the seller can take back the token.

Reliably upgrade decentralized network

The various improvement proposals we have discussed are at different stages of development, and it will be exciting to see which improvements will be adopted next year. Although BIP itself proposes gradual improvements rather than radical changes, the proposed upgrades are expected to make Bitcoin more efficient and private, while making the protocol more compatible with layer 2 solutions such as Lightning.

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