Bitcoin is the biggest and the most popular cryptocurrency. It has been the leading name in the world of cryptocurrencies since 2009 – not just by the virtue of it being the first cryptocurrency, but also because it has an active community that supports it not just in the markets, but also when it comes to improving and developing the technology that powers it. To ensure that Bitcoin runs smoothly – developers keep introducing various Bitcoin Improvement Proposals (BIPs).

Bitcoin price gains last year caused a large number of investors to be attracted towards investing in the currency. Over the past one year, we have seen two major forks take place – Bitcoin Cash being the most significant one, as well as that of Bitcoin Gold. However, have you ever wondered how a fork comes about? BIPs are the answer!

What is a BIP (Bitcoin Improvement Proposal)?

While most casual traders may not have heard of what a BIP is – old-timers in the cryptocurrency trade are likely to have heard of this term used frequently, particularly in forums where community discussions take place. A Bitcoin Improvement Proposal is basically a document created by developers which recommends solutions to problems that the Bitcoin network faces.

Talks around Bitcoin Improvement Proposals are getting more frequent these days, considering the fact that the network is getting congested – leading to slower transactions and higher transaction fees. The buzz around these BIPs usually increases when a fork approaches.

While the primary purpose of the BIPs is to ensure that the network keeps functioning smoothly, Bitcoin Improvement Proposals are also necessary to ensure that Bitcoin retains its top spot as the market leader in the cryptocurrency ecosystem. Considering that new cryptocurrencies are being created at a frequent and regular basis, developers want to ensure that the Bitcoin Network overcomes all obstacles and continues to provide users with a seamless cryptocurrency experience.

Most Bitcoin Improvement Proposals come with a number that follows them. The format that they are commonly referred to is something like BIP XXX (XXX representing a number). One of the most popular BIPs, which has been dominating the news of late is the BIP 141 – which talked about the Segregated Witnesses improvement, commonly known as SegWit. Following the implementation of the BIP 141, transaction speeds have increased and the fees has reduced. Most BIPs are usually aimed at helping improve the Bitcoin network.

Why are BIPs Important?

Bitcoin Improvement Proposals are important because of multiple reasons. BIPs ensure that ‘Bitcoin Dominance’ is maintained. By constantly improving the functions of the Bitcoin network, BIPs ensure that all problems are addressed and documented.

BIPs can also lead to forks in the Bitcoin network. The very first BIP highlights the process of how BIPs are approved or rejected:

  • First, a public discussion has to take place to confirm that the idea is indeed worth considering.
  • Following that it is submitted to the mailing list of Bitcoin developers – and is then added to the Git repository for BIPs.
  • The final decision however is in the hands of miners running full nodes. If a majority of the miners vote for the BIP, the proposed improvements are then acted upon.

However, in case a majority of the miners running full nodes decline the BIP but it is still supported by a significant number of developers and nodes, forks can take place. This kind of a disagreement has led to the creation of two of the most popular Bitcoin forks – Bitcoin Gold and Bitcoin Cash.

The First Bitcoin Improvement Proposal

The first BIP was submitted on the 19th of August, 2011 by Amir Taaki. This document is popularly known as BIP 0001. It outlines what a Bitcoin Improvement Proposal is and stated the purpose of creating BIPs:

BIP stands for Bitcoin Improvement Proposal. A BIP is a design document providing information to the Bitcoin community, or describing a new feature for Bitcoin or its processes or environment. The BIP should provide a concise technical specification of the feature and a rationale for the feature.

We intend BIPs to be the primary mechanisms for proposing new features, for collecting community input on an issue, and for documenting the design decisions that have gone into Bitcoin. The BIP author is responsible for building consensus within the community and documenting dissenting opinions.

Because the BIPs are maintained as text files in a versioned repository, their revision history is the historical record of the feature proposal.

Types of BIPs

There are three kinds of Bitcoin Improvement Proposals, as suggested in BIP 0001:

  • Standards Track BIP: This kind of a Bitcoin Improvement Proposal talks about changes which can potentially affect all the implementations of the Bitcoin network – such as suggestions to change or improve the network protocol or to change the rules of blocks or transaction validity.
  • Informational BIP: An informational Bitcoin Improvement Proposal is not technically an improvement proposal – but it is just a document that brings forward information on matters pertaining to the Bitcoin network. These are used to provide general guidelines to the Bitcoin community.
  • Process BIP: A process BIP is similar to the Standards Track BIP, but the changes suggested in this document are those which do not affect the codebase of Bitcoins. However, these changes still require a community consensus. Examples of process BIPs are changes to the decision-making process or changes to tools used for Bitcoin development.

The Best Bitcoin Improvement Proposals

Now that you have understood what a BIP is, what its benefits are and what are the different types of Bitcoin Improvement Proposals, let us take a closer look at some of the best recent BIPs:

  • Lightning Network

The lightning network has come to effect over the past few months – and has had a significant impact on the Bitcoin transactions. Yet to reach its full potential, the Lightning Network actually started off as a Bitcoin Improvement Proposal back in 2015! Having now found major backers such as Twitter’s Jack Dorsey, the Lightning Network was originally proposed by Joseph Poon and Thaddeus Dryja.

The concept here is simple to explain yet complex to execute: making the Bitcoin network scalable. This BIP talks about introducing micro-payments which happen off-chain. Here’s an extract from this BIP which explain the concept of lightning network:

“Creating a network of micropayment channels enables bitcoin scalability, micropayments down to the satoshi (0.00000001 Bitcoins), and near-instant transactions. These channels represent real Bitcoin transactions, using the Bitcoin scripting opcodes to enable the transfer of funds without risk of counterparty theft, especially with long-term miner risk mitigations.”

  • Confidential Transactions

One of the biggest debates in the world of cryptocurrencies right now is between regulation and privacy. Is the government trying too hard to deanonymize cryptocurrencies? Are cryptocurrencies doing too less to protect the users?

The confidential transactions BIP is aimed at making transactions more private while they remain within the Bitcoin network. At present, there is only a limited level of privacy that the Bitcoin network offers and users seeking more privacy have to resort to using other currencies such as Monero which are more privacy-focused. This BIP is being developed by Gregory Maxwell.

Thanks to the SegWit update, it has now become much easier to introduce confidential transactions in the Bitcoin Network. Once this update comes into effect, Bitcoin users would no longer need to resort to currencies such as Monero and Zcash for concerns related to privacy.

  • M.A.S.T.

Another popular concept which is being worked upon of late is that of the M.A.S.T. It stands for Merkelized Abstract Syntax Trees. This proposal talks about a tool which would make it possible for complicated data sets to be included in transaction-related data on the Bitcoin blockchain. This would be a combination of two algorithmic tools: Merkle Trees and Abstract Syntax Trees.

There are three BIPs which currently talk about the development of M.A.S.T – BIP 114, BIP 116 and BIP 117. The merkelized script, once introduced in full effect, would be useful not just for including complicated data sets – but would also help in improving the transaction privacy. The update would also help in improving the speed of transactions on the Bitcoin Network.

Conclusion

Over the years, Bitcoin Improvement Proposals have been viewed rather critically by some who hold the view that they have lost their purpose. They claim that BIPs are now a place for disgruntled developers to propose solutions to problems that are seemingly affecting either just them or a very small group of individuals – losing sight from the larger picture.

While the government organizations discuss and debate Bitcoins and matters pertaining to Bitcoin such as regulations and Bitcoin ETFs, Bitcoin Improvement Proposals are also an important part of the cryptocurrency ecosystem which command respect. Forks are often considered to be bad for the crypto-community at large – and disagreements over BIPs are usually the first steps towards a fork in the network.

Article Written By: Khushboo Shah