Bitcoin rises again after major upgrade

Forget Elon Musk’s tweets – experts say this major change to bitcoin is far more important as the price rises once again.

The price of bitcoin has risen roughly 20 per cent over the past week, buoyed by comments from tech billionaire Elon Musk and the digital currency’s first software upgrade in four years.

Bitcoin was trading at just over $US40,000 on Wednesday morning AEST, up from $US33,531 the same time last week, according to Coinmarketcap.

On Monday, a tweet from Musk suggesting Tesla may once again begin accepting bitcoin in the future sent the currency soaring by 10 per cent.

The apparent reversal came after the eccentric billionaire – who can drive huge swings in cryptocurrency markets with a single tweet – had earlier raised environmental concerns about bitcoin mining, sending its price into free fall.

Bitcoin’s price is nearly 40 per cent down from its all-time high of $US64,829 in mid-April – but is still more than four times higher than this time last year.

While Musk’s hot-and-cold tweets drive temporary price movements, experts say a far more significant development occurred over the weekend with the first upgrade to bitcoin’s code since 2017.

“This upgrade is a massive deal in the bitcoin community,” Caroline Bowler, chief executive of Australian crypto exchange BTC Markets told The Australian Financial Review. “Elon Musk’s decision to change his mind on bitcoin is a drop in the ocean compared to what was agreed over the weekend.”

The so-called Taproot upgrade was approved by miners around the world, and is due to come into effect in November. The change will improve transaction efficiency and privacy, but crucially will unlock the potential for smart contracts.

Bitcoin has had a wild ride over the past two weeks. Picture: Marco Bello/AFP

Smart contracts, a key feature of the rival ethereum cryptocurrency, allow for more complex, self-executing transactions to exist directly on the blockchain, without the need for middlemen.

“Smart contracts essentially give you the opportunity to really build applications and businesses on the blockchain,” Fred Thiel from bitcoin mining specialist Marathon Digital Holdings told CNBC on Sunday.

Smart contracts can already be created on the Lightning Network, a payments platform built on bitcoin, and on the core bitcoin protocol, but at a much higher transaction cost.

The Taproot upgrade greatly enhances the functionality of bitcoin by changing the kind of digital signatures used, making smart contracts cheaper and smaller in terms of blockchain space.

Alyse Killeen from investment firm Stillmark told CNBC the upgrade represented “mind-blowing potential”.

“Lightning transactions can be fractions of a penny … while a bitcoin transaction at the core protocol layer can be much more expensive than that,” she said.

Speaking to the AFR, Ms Bowler used the example of travel insurance.

“Say you’re in Paris and your flight gets cancelled due to bad weather, a smart contract would gather the flight details, weather reports, hotel details and other necessary data and automatically pay out the affected people without the travel insurer touching a button,” she said.

The latest news comes after a volatile week for bitcoin.

The market was given a boost with El Salvador becoming the first country in the world to accept bitcoin as legal tender.

And on Sunday, Tanzania’s president reportedly advised the country’s central bank to prepare for wider adoption of cryptocurrency.

On Friday, markets took a hit after the global banking regulator floated tougher rules on cryptocurrency assets.

The Basel Committee on Banking Supervision argued the volatility of crypto assets such as bitcoin could pose a risk to the banking system and “global financial stability”.

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