“Confusion is a word we have invented for an order which is not understood.” Henry Miller
Bitcoin is a well-known cryptocurrency, that has been around since late 2008 but in recent times there hasn’t been much buzz around Bitcoin except for its declining prices. Wouldn’t it be right to believe that in the end it was just a short-lived popular fad or will it grow into something quite different?
There are divided opinions on this, however with respect to new and exciting developments in Bitcoin technology we will discuss about them today.
Three main developments in Bitcoin Technology
Before discussing the new development let take a quick recap, how Bitcoin technology works.
Each deal made for Bitcoin is based on single input and multiple outputs. This means, by making a single transaction money can be transferred to multiple people.
Batching is a method that places multiple transactions into a limited block space available on Bitcoin’s Blockchain. With batching, without increasing the number of transactions, higher number of outputs can be achieved per input. This means you can save space and cost.
In simple words batching is combining various transactions into a single transaction, by accumulating multiple outputs per input.
Batching creates added space in the block for added transactions leading to more outputs.
How will this help in real-life?
Consider yourself as a company making payments in cryptocurrency.
With batching what help will you get? Instead of making 10 different transactions for a purpose be it paying salaries or paying to an agent, you can choose to batch all payments in a single transaction and can set 10 different outputs, this will allow you to pay less fee and make block look smaller.
Its bit technical to explain Schnorr Signatures, to those without technical knowledge. However, to make it simpler we have divided it into parts.
What are Schnorr Signatures?
Schnorr signature is an exciting innovation, it is a replacement of Bitcoin’s digital algorithm (ECDSA) Schnorr, is a digital signature produced by Schnorr algorithm. It can help scale on-chain transactions and improve security and privacy of participants.
Schnorr signatures support “native multisig” this means it collects multiple signatures into a single valid one.
Model to explain how transactions work.
In Bitcoin, when a transaction is made output from prior transaction is spent and a new output is generated that can be spent in future transactions. All these unspent transactions are stored in a fully synchronized node, called the simple UTXO (Unspent Transaction Output) model.
Now, to approve these transaction signatures are used, and this is when Schnorr signatures make things simple.
Schnorr Signatures collects all the signatures needed into one signature that can be used as a proof to unlock the transaction outputs. This means the script will now be unlocked with 1 signature that names each participant.
All this leads to:
- Reduces size of on-chain transaction.
- Quicker authentication for each transaction
- Enhanced confidentiality for members of a Multi-Signature wallet
This is an amazing concept it means exchanging one cryptocurrency for another, without the need to trust a third-party. To understand it better let’s take an example:
If Susan owns 6 Bitcoins but wants to exchange Bitcoin for 50 Litecoins, she will have to go through an Bitcoin exchange, i.e. a third-party. However, with atomic swaps, Bitcoin exchange and of another cryptocurrency can be done easily. If someone let’s assume Luke owns 50 Litecoins and he wants to exchange it with 6 Bitcoins, then Luke and Susan could make a trade. To make this trade they can use automatic swaps. But say for example Susan accepts 50 Litecoins and fails to send 6 Bitcoin then what?
To resolve the problem automatic swaps, use hash time locked contracts (HTLCs), to make sure that atomic swap process is successfully done and both gets what they are trading for.
To make the trade fruitful they need to submit their transaction to their respective Blockchain and then produce a number that only they know to generate cryptographic hash, thus providing proof of payment and make the transaction successfully.
Atomic swaps reduce on-chain privacy, as user’s transactions can be linked cross-chain. But it can also be used with off-chain protocols, like the Lightning Network.
These new developments and technologies will surely bring a change to future of Bitcoin. Now with batching in effect more mining of Bitcoin can be done as blockspace will be used more efficiently. Also with Schnorr signature less time will be invested in verifying a transaction as it will deal will multisign.
In addition to this atomic swap will make cryptocurrency exchanges easy and simple. No longer now the user will need to depend on wallets and different services. With Atomic swap they can easily make a successful transaction by generating a cryptographic hash, that will work as proof of payment thus making sure that the exchange is successfully made.
Next Read: Top 5 Trends of Blockchain Technology 2018