In many ways, 2017 was Bitcoin’s best year yet. Most obviously, increased adoption made the pioneering cryptocurrency’s exchange rate skyrocket from under $1000 to well over 10 times that value.
But from a tech perspective, things seem to be just getting started: 2018 promises to be the year that a number of highly anticipated projects are either launched or adopted.
Here’s a brief overview of some of the most promising upcoming technological developments to keep an eye on in the new year.
Segregated Witness (SegWit) was one of Bitcoin’s biggest — if not the biggest — protocol upgrade to date. Activated in August 2017, it fixed the long-standing malleability bug, in turn better enabling second-layer protocols. Additionally, SegWit replaced Bitcoin’s block size limit with a block weight limit, allowing for increased transactions throughout the network, thereby lowering fees per transaction.
However, adoption of the upgrade has been off to a relatively slow start. While some wallets and services are utilizing the added block space offered by SegWit, many others are not yet doing so. This means that, while Bitcoin is technically capable of supporting between two and four megabytes worth of transactions per ten minutes, it barely exceeds 1.1 megabytes.
This is set to change in 2018.
For one, the Bitcoin Core wallet interface will allow users to accept and send SegWit transactions. Bitcoin Core 0.16, scheduled for May 2018 (though this may be moved forward), will most likely realize this through a new address format known as “bech32,” which also has some technical advantages that limit risks and mistakes (for example, those caused by typos).
“To spend coins from the P2SH format currently used for SegWit, users need to reveal a redeem script in the transaction,” Bitcoin Core and Blockstream developer Dr. Pieter Wuille, who also co-designed the bech32 address format, told Bitcoin Magazine.
“With native SegWit outputs this is no longer necessary, which means transactions take up less data. Recipients of SegWit transactions will be able to spend these coins at a lower cost.”
Perhaps even more importantly, several major Bitcoin services — like Coinbase — plan to upgrade to SegWit in 2018 as well. Since such services account for a large chunk of all transactions on the Bitcoin network, this could significantly decrease network congestion, thereby decreasing average transaction fees and confirmation times, even for those who do not use these services.
While further SegWit adoption should provide immediate relief of fee pressure and confirmation times, truly meaningful long-term scalability will likely be achieved with second-layer solutions built on top of Bitcoin’s blockchain.
One of the most highly anticipated solutions in this regard — especially for lower value transactions — is the lightning network. This overlay network, first proposed by Joseph Poon and Tadge Dryja in 2015, promises to enable near-free transactions and instant confirmations, all while leveraging Bitcoin’s security.
The solution has been under active development for about two years now, with major efforts by ACINQ, Blockstream and Lightning Labs. Progress on the scaling layer has been significant all throughout 2017, with early software releases of different but compatible software implementations, useable wallets interfaces and test transactions happening both on Bitcoin’s testnet and even on Bitcoin’s mainnet on a regular basis now.
“I'd say we have solved the main technical problems and have a relatively good idea on how to improve on the current system,” Christian Decker, lightning developer at Blockstream, told Bitcoin Magazine. “One last hurdle that's worth mentioning is the network topology: We'd like to steer the network formation to be as decentralized as possible.”
Given the current state of development, adoption of the lightning network should only increase throughout 2018 — not just among developers, but increasingly among end users as well.
“Integration and testing will be the next major step forward,” Lightning Labs CEO Elizabeth Stark agreed, noting: “Some exchanges and wallets are already working on it.”
While it is sometimes misrepresented as such, Bitcoin is not really private right now. All transactions are included in the public blockchain for anyone to see, and transaction data analysis can reveal a lot about who owns what, who transacts with whom and more. While there are solutions available to increase privacy right now — like straightforward bitcoin mixers — these usually have significant drawbacks: They often require trusted parties or have privacy leaks.
This situation could be improved significantly in 2018. Two of the most promising projects in this domain — TumbleBit and ZeroLink — are both getting close to mainnet deployment.
TumbleBit was first proposed in 2016 by a group of researchers led by Ethan Heilman. It is essentially a coin-mixing protocol that uses a tumbler to create payment channels from all participants to all participants in a single mixing session. Everyone effectively receives different bitcoins than what they started with, breaking the trail of ownership for all. And importantly, TumbleBit utilizes clever cryptographic tricks to ensure that the tumbler can’t establish a link between users either.
An initial implementation of the TumbleBit protocol was coded by NBitcoin developer Nicolas Dorier in early 2017. His work was picked up by Ádám Ficsór as well as other developers, and blockchain platform Stratis announced it would implement the technology in its upcoming Breeze wallet, which also supports Bitcoin, by March 2018. Recently, in mid- December of 2017, Stratis released TumbleBit integration in this wallet in beta.
The other promising solution, ZeroLink, is an older concept: it was first proposed (not under the same name) by Bitcoin Core contributor and Blockstream CTO Gregory Maxwell, back in 2013. Not unlike TumbleBit, ZeroLink utilizes a central server to connect all users but without being able to link their transactions. As opposed to TumbleBit, however, it creates a single (CoinJoin) transaction between all participants, which makes the solution significantly cheaper.
This idea seemed to have been forgotten for some years until Ficsór (indeed, the same Ficsór that worked on TumbleBit) rediscovered it earlier this year. He switched his efforts from TumbleBit to a new ZeroLink project and has since finished an initial ZeroLink implementation.
Ficsór recently ran some tests with his ZeroLink implementation, and while results showed that his implementation needs improvement, Ficsór considers it likely that it will be properly usable within months.
“I could throw it out in the open right now and let people mix,” he told Bitcoin Magazine. "There is no risk of money loss at any point during the mix, and many mixing rounds were executing correctly. It is just some users would encounter some bugs I am not comfortable with fixing on the fly.”
Sidechains are alternative blockchains but with coins pegged one-to-one to specific bitcoins. This allows users to effectively “move” bitcoins to chains that operate under entirely different rules and means that Bitcoin and all its sidechains only use the “original” 21 million coins embedded in the Bitcoin protocol. A sidechain could then, for example, allow for faster confirmations, or more privacy, or extended smart contract capabilities, or just about anything else that altcoins are used for today.
The concept was first proposed by Blockstream CEO Dr. Adam Back and others back in 2014; it formed the basis around which Blockstream was first founded. Blockstream itself also launched the Liquid sidechain, which allows for instant transactions between — in particular — Bitcoin exchanges. Liquid is currently still in beta but could see its 1.0 release in 2018.
Another highly anticipated sidechain that has been in development for some time is RSK. RSK is set to enable support of Turing-complete smart contracts, hence bringing the flexibility of Ethereum to Bitcoin. RSK is currently in closed beta, with RSK Labs cofounder Sergio Demian Lerner suggesting a public release could follow soon.
Further, Bloq scientist Paul Sztorc recently finished a rough implementation of his drivechain project. Where both Liquid and RSK for now apply a “federated” model, where the sidechain is secured by a group of semi-trusted “gatekeepers,” drivechains would be secured by bitcoin miners.
If drivechains are deployed in 2018, the first iteration of such a sidechain could well be “Bitcoin Extended:” essentially a “big block" version of Bitcoin to allow for more transaction throughput. That said, reception of the proposal on the Bitcoin development mailing list and within Bitcoin’s development community has been mixed so far. Since drivechains do need a soft-fork protocol upgrade, the contention does make the future of drivechains a bit more uncertain.
“Miners could activate drivechains tomorrow, but they often outsource their understanding of ‘what software is good’,” Sztorc told Bitcoin Magazine. “So they'll either have to decide for themselves that it is good, or it would have to make it into a Bitcoin release.”
Schnorr signatures, named after its inventor Claus-Peter Schnorr, are considered by many cryptographers to be the best type cryptographic signatures in the field. They offer a strong level of correctness, do not suffer from malleability, are relatively fast to verify and enable useful features, thanks to their mathematical properties. Now, with the activation of Segregated Witness, it could be relatively easy to implement Schnorr signatures on the Bitcoin protocol.
Perhaps the biggest advantage of the Schnorr signature algorithm is that multiple signatures can be aggregated into a single signature. In the context of Bitcoin, this means that one signature can prove ownership of multiple Bitcoin addresses (really, “inputs”). Since many transactions send coins from multiple inputs, having to include only one signature per transaction should significantly benefit Bitcoin’s scalability. Analysis based on historical transactions suggest it would save an average of 25 percent per transaction, which would increase Bitcoin’s maximum transaction capacity by about 33 percent.
Further on, Schnorr signatures could enable even more. For example, with Schnorr, it should also be possible to aggregate different signatures from a multi-signature transaction, which require multiple signatures to spend the same input. This could, in turn, make CoinJoin a cheaper alternative to regular transactions for participants, thereby incentivizing a more private-use Bitcoin. Eventually the mathematical properties of Schnorr signatures could even enable more advanced applications, such as smart contracts utilizing “Scriptless Scripts.”
Speaking to Bitcoin Magazine, Wuille confirmed that there will probably be a concrete Bitcoin Improvement Proposal for Schnorr signatures in 2018.
“We might, as a first step, propose an upgrade to support Schnorr signatures without aggregation,” he said. “This would be a bit more straightforward to implement and already offers benefits. Then a proposal to add aggregation would follow later.”
Whether Schnorr signatures will already be adopted and used on Bitcoin’s mainnet is harder to predict. It will require a soft fork protocol upgrade, and much depends on the peer review and testing process.