February 4, 2023

Bitcoin blockchain development: development and innovation in the BTC network

Bitcoin blockchain development: development and innovation in the BTC network

Bitcoin has come a long way in the last ten years. Since the release of the first software version Bitcoin quality of current implementations is noticeableimproved. Bitcoin was able to attract a legion of developers who have devoted thousands of hours to improving, and sometimes updating, most of the code base of the first cryptocurrency.

However, Bitcoin has remained the same. The basic set of consensus rules defining its monetary properties (algorithmic inflation and limited supply) remains unchanged. Again and again, different factions tried to change these fundamental characteristics, but all their attempts failed. It only emphasizes and strengthens the two biggest advantages of bitcoin:

  • Neither side can dictate how Bitcoin should develop;
  • The lack of centralized control protects the monetary properties of bitcoin.

Interestingly, these very rules attract howcipherbanks and institutional investors, as these are the properties that make Bitcoin an unprecedented form of money. However, these are also the rules that make software development on top of bitcoin more complex than for any other digital asset. Bitcoin provides developers with a rather limited set of tools so that they cannot violate its monetary properties, because too much is at stake.

This means that innovation in bitcoin requirespatience and, most importantly, minimize ego. In the end, the fundamental rules laid down in bitcoin ultimately crowd out technology. That's why Silicon Valley has a hard time understanding the value of bitcoin - it's not just a technology, financial instrument or consumer application; it is a whole monetary system supported by technology. Changing the constitution of bitcoin requires a quasi-political process that can disrupt its monetary properties, so technological innovations are implemented modularly.

As often noted earlier, the modular approachBitcoin innovation is similar to the evolution of the Internet, where various protocols specialize in specific functions. Emails were processed via SMTP, files via FTP, web pages via HTTP, user addressing by IP and packet routing via TCP. Over the years, each of these protocols has evolved to provide you with the best experience you get at that very second.

Spencer Bogart's article on the technology stackBitcoin says that we are now witnessing the beginning of the creation of our own set of bitcoin protocols. As it turned out, the rigidity of the basic level of bitcoin has generated a number of additional protocols that specialize in various applications (for example, the BOLT standard for channels in the Lightning Network). Also, such a modular approach to innovation minimizes systemic risks.

At different levels of bitcoin development,so much that today it’s incredibly difficult to keep track of new solutions. The diagram below is an attempt to reflect all relatively new initiatives and demonstrate a more complete picture of the Bitcoin technology stack:

Bitcoin blockchain development: development and innovation in the BTC network

This card is not comprehensive and does not meanapproval of specific initiatives (total of more than 40). Nevertheless, it is impressive that progress is observed on all fronts - from second-level technologies to new solutions for smart contracts.

Second Level - Lightning Network

Bitcoin blockchain development: development and innovation in the BTC network

They talk a lot about speed latelyadoption of the Lightning Network (LN) - today it is the most popular technology of the second level. Critics often point to an obvious decrease in the number of channels and the total number of bitcoins blocked in Lightning; these are two metrics that are often used to measure user acceptance of a network. Although the community often refers to these metrics, it’s important to note that they are fundamentally wrong, given how Lightning works.

One of the most underrated benefits of LNis her level of privacy. Because Lightning does not rely on a global check of all state changes (i.e., its own blockchain), users can perform private operations using additional methods and overlay networks such as Tor.

According to Christian Decker, about 41% of Lightning's channels are private:

Bitcoin blockchain development: development and innovation in the BTC network

Activity occurring in these channels is notfixed by popular LN browsers. Thus, an increase in the private use of Lightning leads to a decrease in visible data, and observers mistakenly conclude that the user is leaving the network.

Indeed, Lightning has yet to overcomesignificant usability barriers before this technology can be widely adopted, but we must stop using misleading metrics to talk about the current state of the network. According to Decker in his speech at the Lightning Conference in Berlin, even the above assessment of private and public channels will be erroneous, because accepting Schnorr's signatures will make channel opening transactions indistinguishable from ordinary bitcoin transactions.

Another interesting area in the development of LNIt was the creation of WhatSat, a private messaging system on top of Lightning. This project is a modification of Lightning deamon, which allows message repeaters to receive compensation for their services through micropayments. This decentralized, censorship and spam-resistant messenger is made possible by innovations in LND itself (recent improvements in Lightning-Onion, Lightning's own onion routing protocol). The growing number of Lightning applications (Lightning Applications or Lapps) demonstrates the wide applicability of these innovations when it comes to consumer applications.

And these are just innovations at Lightning. In a broader sense, we define the second level as a set of applications that use the basic level of bitcoin as a “court” in which external events are coordinated. The topic of data binding to the bitcoin blockchain is much broader and companies such as Microsoft today are introducing a digital identification system on top of bitcoin.

Smart contracts

Bitcoin blockchain development: development and innovation in the BTC network

There are also a number of projects trying to returnBitcoin functional smart contracts. This is a difficult development, since starting in 2010 some of the Bitcoin operating codes (or opcodes are operations that determine that Bitcoin is able to calculate) have been removed from the protocol. This happened after a series of critical errors were discovered that led Satoshi himself to disable some functions in Script, the Bitcoin programming language.

Over the years, it has become clear that there are serioussecurity risks in the functionality of smart contracts. The general rule of thumb is that the more functionality is injected into a virtual machine (a collective verification mechanism that processes opcodes), the more unpredictable its programs will be. However, recently, developers have seen new approaches to the architecture of smart contracts in Bitcoin, which can minimize their unpredictability along with the provision of wide functionality.

Developing a new approach to smart contractsBitcoin called Merkleized Abstract Syntax Trees (MAST) has led to the emergence of a new wave of technologies that are trying to find a compromise between security and functionality. Most notable is Taproot, an elegant implementation of the MAST framework that allows an entire application to be expressed as a Merkle tree. Together with Taproot, the Tapscript programming language will appear, which can be used to more easily express the spending conditions associated with each branch of the Merkle tree.

Another interesting innovation is the newarchitecture for implementing covenants (or spending conditions) in bitcoin transactions. Initially proposed by Greg Maxwell as a thought experiment back in 2013, covenates are an approach that allows you to limit the use of bitcoins on accounts even when changing their storage conditions. Although the idea has been around for almost seven years, covenants were impractical to implement before the Taproot proposal.

At first glance, covenants are incredibly useful inlending context (and possibly bitcoin derivatives), but their potential impact on the usability of bitcoin goes far beyond lending. Agreements may include the implementation of such things as Bitcoin vaults that provide the equivalent of a second private key, which allows the hacked party to “freeze” stolen funds.

It’s important to note that activating Schnorr signatures can add even more sophisticated functionality to smart contracts that can make them completely private and scalable.


Bitcoin blockchain development: development and innovation in the BTC network

There are also some interesting developments inBTC mining protocols, especially those used by pools. Despite the fact that the problem of centralization of bitcoin mining is often greatly exaggerated, it is true that the pool operators have power, which can be further decentralized. One of the most significant changes in Bitcoin mining is the Stratum V2 protocol.

Another interesting mining initiativeare derivatives on hashrate and complexity. They can be especially useful for miners who want to insure themselves against fluctuations in the hash of the network. Although these derivatives have not yet been implemented, it demonstrates the evolution in the industrialization of bitcoin mining.


Bitcoin blockchain development: development and innovation in the BTC network

After the publication of the research report onThe influence of Schnorr signatures on bitcoin, some supporters of coins with a high level of anonymity were outraged by the assumption that complete confidentiality can be implemented in bitcoin. Although this assumption may threaten the long-term prospects of anonymous coins, today there are many other protocols that can provide better privacy in bitcoin.

It is important to emphasize that the biggest obstaclefor private transactions in digital assets is the fact that most of the solutions are unfinished. Also, decisions in anonymous coins often lack practical use, which simplifies the deanonymization of transactions either through statistical analysis or at the blockchain level.

Today the most interesting bitcoin solutionsare P2EP and CheckTemplateVerify, because privacy is becoming a byproduct of efficiency. As a new approach to CoinJoin, these decisions can accelerate the adoption of private transactions by users motivated by lower transaction fees.

If lower transaction feesbecome incentives, they will lead to an increase in anonymity in bitcoin. As the percentage of UTXO grows (the more participants, the higher the level of anonymity), deanonymization through statistical cluster analysis will become even more subjective than it is today. Some companies involved in the analysis of blockchains have managed to convince law enforcement agencies that there is a certain probability that UTXO belongs to a specific user, but the basic model of this analysis is already extremely fragile. If most UTXOs become CoinJoin outputs, this could ruin all existing clustering approaches.

Before this happens, you must dohuge work in the field of usability, so that all Bitcoin users have equal access to privacy mechanisms. In addition to P2EP and CheckTemplateVerify, there is also a SNICKER offer, which offers a new way to generate CoinJoin transactions with unreliable peers. SNICKER combines several technologies to provide users access to CoinJoin transactions without having to trust or interact with their peers.

The latest development in the Bitcoin network stack,worth noting is the new transaction relay protocol called Erlay. Erlay is still at a very early stage of development. In the case of the implementation, Erlay will simplify the initial block loading (IBD) and the constant check of the blockchain, since it can significantly reduce the bandwidth requirements for the full Bitcoin node to work.

Tip of the iceberg

Bitcoin blockchain development: development and innovation in the BTC network

Incredibly difficult to track all the innovations inBitcoin and this article are just a scratch on the surface. This brings us to a key conclusion: Bitcoin is an ever-evolving set of protocols.

The modular approach to innovation described hereIt is important because it plays a key role in minimizing the politicization of bitcoin and protects its fundamental monetary properties. Remember this article the next time someone says that Bitcoin is in place.