Bitcoin Improvement Proposals - what are they and why do they matter?

Bitcoin, the first ever cryptocurrency and the largest by market capitalisation, has been around for quite a while. It has gone through several changes to be the digital currency we know today, changes that have highly contributed to the coin being valued at thousands of dollars.

Indeed, it might not have undergone as many changes as its main competitor, Ethereum, which has recently generated all-time hype regarding its Shapella upgrade.

But from time to time, there are some improvements in how the Bitcoin blockchain works, sometimes just a minor adjustment, other times a more significant upgrade like Taproot, which took years to complete. This allowed developers to add new features to enhance security, scalability, and privacy.

However, regardless of its complexity, each update is meant to mend the blockchain’s shortcomings and boost the protocol’s overall functionality. And behind every implementation of such a change, there’s a proposal commonly referred to as BIT - Bitcoin Improvement Proposal.

At their core, BIPs are documents designed by developers and aimed at improving the protocol.

Nonetheless, they’re not incorporated into the protocol that easily, as there’s a need for the vote of the majority of miners in this respect. It might sound a bit complicated, but as we delve into the subject, you’ll understand it better. And maybe you finally decide to buy Bitcoin from an exchange like Binance.

Let’s get into it!

What are BIPs?

A Bitcoin Improvement Proposal (BIP) is the standard method used to promote improvements, changes, or any other modifications to the Bitcoin protocol.

It’s a format document developers create to introduce new processes or features to the blockchain, and it can target everything from development processes and community standards to consensus rules within the protocol.

Since we talk about a decentralised network, i.e., no leaders and third-party intermediaries to validate transactions, a BIP intends to provide development and update coordination within the community.

However, the proposals presented by developers to the community members need approval. They’re usually assessed by other recognised Bitcoin developers, who will further vote on their implementation. After being published on the Bitcoin Core GitHub repository, a BIP is subject to multiple analyses.

It’s essential for consensus contributors to show whether they support or not a particular BIP. Signaling is the go-to method in this respect - a process in which miners show whether they’re in favour or against a new BIP. If the majority of participants vote for the proposal, an activation phase will follow.

Types of BIPs

These upgrades can range from a code simplification and a change to the algorithm to a bug fix. For instance, the first Bitcoin Improvement Proposal (BIP 001) was presented by Amir Taaki, a British-Iranian programmer who wanted to explain how a BIP works.

That happened in 2011 - several other upgrades have been proposed since then. These can be classified as follows:

Standard BIPs

These kinds of BIPs are aimed at bringing changes to block or transaction validation methods or to the network protocol itself. They determine standards Bitcoin software uses, such as exchanges and wallets, and propose changing how it works.

For these to be approved, community consensus is required. Among the things they aim to improve, the most prominent is the interoperability between the two versions of the network’s protocol.

Informational BIPs

As their name also suggests, these BIPs have an educative role only. They provide supporting information and general guidelines for various matters, including design issues. However, they’re not aimed at changing the protocol - they provide mere suggestions on how things could be improved.

Thus, there’s no need for community consensus - it doesn’t matter whether the participants take them seriously or not. BIP 001 is a BIP of this sort.

Process BIPs

Also called consensus BIPs, process BIPs intend to change a process, and, just like standard BIPs, can’t be completed without universal consensus. Even if they often involve changes outside of the protocol, they require community consensus in order to activate.

Notable BIPs

As previously mentioned, BIP 001 was the first implemented BIP. It was meant to provide information on how a BIP should work, also establishing the structure and format of all the proposals to come. The most notable examples include:

Segregated Witness

Segregated Witness, or SegWit, was introduced at the Scaling Bitcoin conference seven years ago. It was outlined in several proposals, including BIP-91, BIP-141, and BIP-148, and aimed at changing the way transactions work for users.

A common issue at that time was the possibility of modifying transaction IDs, which could lead to asset theft, and transaction malleability.

Well, SegWit promised to solve it all. Successfully adopted in 2017, the BIP fixed transaction malleability and allowed participants to develop a layer 2 solution that was to change everything we know about the Bitcoin blockchain - Lightning Network.

Markelized Abstract Syntax Tree

Another significant proposal is Markelized Abstract Syntax Tree or MAST. This improvement idea was outlined in two notable BIPs, namely BIP-116 and BIP-117, and aimed to allow complex data sets to be added to Bitcoin transaction data.

Being a cryptographic tool at its core, MAST made it possible to determine crucial data and simultaneously minimize the amount of data needed to be recorded on the Bitcoin network.

Taproot

Taproot is undeniably the most notable improvement for the Bitcoin blockchain - and the last to happen. Software developer Greg Maxwell proposed it in 2018 but only went live in 2021, so why did it take so much to get approved?

That’s because it comprised a set of meaningful changes that community participants needed to analyze meticulously, including allowing for complex transactions with multiple signatures.

And although this BIP came with many privacy-enhancing benefits, it still had to undergo several difficult tests. It was outlined in BIP-340, BIP-341, and BIP-341 and was a real achievement for the entire Bitcoin network. 

Which soft-fork BIPs could become a reality in the next few years?

Now that you’ve learned a bit about BIPs, you surely wonder whether any other future proposals are about to happen. And although nothing is for sure, experts still have hope that the so-called Bitcoin Covenants and Drivechains will be implemented.

These would allow users to choose how they use Bitcoin after a transaction is completed, as well as send, create, receive, and delete Bitcoin from second layers.