Crypto Research
Bitcoin Improvement Proposal (BIP)
Mar 16, 2021
Since we explained in the previous newsletter about the latest Ethereum Improvement Proposal - the EIP-1559 - this week we would like to go into the Bitcoin Improvement Proposal, also known as BIPs, what they are and how they are approved e.g. in the Bitcoin network. Like EIPs, BIPs are technical documents that deal with issues with changes in Bitcoin.
Here are some key facts about GDP:
Voting
The vote on proposals depends on all participants in the network. The most important ones to win in the vote are the miners and the operators of mining pools. The actual voting could take place over a certain number of fixed blocks. During this time, a mining pool will add its yes or no vote to the blockchain. The votes are proportional to the amount of hashing power provided to the network. The overall process consists of the developers and miners as well as the community voting on the proposal. If the majority vote yes, the code will be implemented by the miners. A majority vote requires at least 55 percent.
Free decision
BIPs are not binding. Developers can decide what code to implement, while users can also choose which software and protocol to run on their computers.
Types of BIPs
There are three different types of BIP:
1. Standard Track BIP: This describes all changes whose effects will affect the core parts of the Bitcoin network. These can be changes in the process of validating transactions within the ecosystem, for example.
2. Informational BIP: No new features are suggested here, but general guidelines or information for the Bitcoin community that users can consider or ignore. These are to be viewed as recommendations.
3. Process BIP: These are similar to Standard Track BIPs in that they require a consensus vote for a major change to be implemented. These types are more than recommendations as users usually cannot ignore them because changes in the core processes of the Bitcoin ecosystem are to be improved.
Examples of BIPs
A full list of BIPs can be found on Github. Below we introduce the most popular and common BIPs to be aware of.
1. CT (Confidential Transactions): A well-known BIP, which focuses on confidential transactions, tried to introduce a new level of data protection for the data contained in the Bitcoin network. This BIP was submitted by a respected blockchain developer named Gregory Maxwell.
2. Segwit or Segregated Witness: Two developers of the Bitcoin Core project proposed BIP 141 in 2015, which was a scaling solution to enable more transactions within a single block.
3. The Lightning Network: Although it is a sidechain solution to the core Bitcoin blockchain, it is still viewed as BIP. The aim of this proposal is to ensure that most transactions (usually small amounts) are carried out outside the main blockchain, so that more time is available for processing larger transaction amounts, which at the same time can reduce mining fees.
In summary, through BIPs everyone has the opportunity and freedom to propose improvements for the general benefit of the community. All it takes is a brilliant suggestion.