Kate Irwin

This is a segment from The Drop newsletter. To read full editions, <a href="https://blockworks.co/newsletter/thedrop">subscribe</a>.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Wanna be a wizard?&nbsp;



Taproot Wizards, a collection of “magic internet jpegs” inspired by the 2013 r/Bitcoin wizard, are holding their first-ever public sale. This sale is happening two years after the Wizards were inscribed onto Bitcoin as Ordinals. Unlike traditional NFTs, Ordinals are pieces of data or art attached directly to satoshis (sats), which are 1/100,000,000th of a bitcoin.



2,085 Wizards will be up for sale through <a href="http://taprootwizards.com">the project’s website</a> starting March 25, with additional honorary Wizards to be inscribed soon and not included in the sale. The honorary Wizards will be given away.&nbsp;



Minting a Taproot Wizard will cost hopeful collectors 0.2 BTC (roughly $16,000 at time of writing), though it&#8217;s worth noting that there will be discounts for holders of Quantum Cats — another Bitcoin Ordinals collection from the same team.



If you own two &#8220;entangled&#8221; Quantum Cats — one with the &#8220;alive&#8221; trait and one with the &#8220;dead&#8221; trait — you can mint a Wizard for 0.1 BTC (about $7,900). The &#8220;entangled&#8221; mechanic plays off Schrödinger’s Cat, the famous quantum physics thought experiment where a cat inside a box exists within both a living and dead state until observed.



The Taproot Wizards price reflects their scarcity — only 2,121 exist, unlike more typical 10,000-piece collections. And yes, the price is steep, especially in this market. But with their cult-like following, I wouldn’t be surprised if they still sell out.



“It’s been quite the journey,” Wizards founder Udi Wertheimer said of the past two years since launching the project.&nbsp;



The mere existence of Ordinals art on Bitcoin has disgruntled some Bitcoin maximalists, with some calling it blockchain “<a href="https://www.reddit.com/r/btc/comments/10wk9h1/speculation_about_the_btc_taproot_wizards_nft/?rdt=34803">vandalism</a>.”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXf1oeSBCb7cICysbuGoDhIjSwAk7cD679CPZ-MF5dub1wyUGnNPRK_4nJ5hGcWh42vJ_Mf6uV3c0QEYaOOvxFDp1U81Th19RdyH21dr8YII4xGtXeYXA1yrqtBQuwZddo0jrM9H0A?key=-n5DtPXh_laWAw4zNloOFZ2D" alt=""/></figure>



Instead, fans had to prove their worth through various bizarre-yet-hilarious displays of commitment. According to Wertheimer, some took it to extremes — showering in full wizard attire, leaping out of helicopters into swimming pools wearing robes and pointy hats, or even braving a car wash with the windows down, robe and all — just to get the team’s attention.



Unorthodox? Perhaps. But plenty were willing to embrace the absurdity for a shot at owning a piece of Bitcoin history.



“If someone wants a Taproot Wizard bad enough, they’ll find a way,” he said.



The Taproot Wizards team, which currently operates with 10 people, is actively hiring. Last month, they raised $30 million in a funding round led by Standard Crypto. They’re advocating for OP_CAT, a proposal that could add more functionality to Bitcoin and would be similar to what Ethereum’s smart contracts offer if passed. Originally created by Satoshi Nakamoto, OP_CAT was disabled in 2010 due to concerns over potential security risks and limited immediate use cases at the time. If reintroduced, it would allow Bitcoin scripts to manipulate and combine pieces of data dynamically, opening the door for more advanced transaction types.



Among other possibilities, it could enable covenants (rules restricting how BTC can be spent), improved smart contracts, and more flexible transaction logic. While not as complex as Ethereum’s smart contracts, OP_CAT could expand Bitcoin’s capabilities without compromising its security and decentralization-first ethos.



Most Wizards will be sold via the whitelist, and a few will be offered on Dutch auction. Another few are being set aside to be given to users for free, who have proved their interest in and loyalty to the Wizards, like one guy who replied on Twitter asking for a Wizard for 365 days in a row.



Why did they wait two years before offering the Wizards for sale?&nbsp;



“It proves to everyone that this is a long-lasting thing, it’s not just a bunch of jpegs we’re trying to sell and move on,” Wertheimer said.&nbsp;



I do agree with Udi that Bitcoin (and its layer-2s like Stacks and Lightning) have so much potential to become a real hub for art, apps, and other neat crypto use cases besides for payments alone.



In my opinion, people won’t likely be buying Taproot Wizards for the Microsoft Paint-esque art. They’ll be buying it for clout, for the community, and to be a part of one of the more famous Ordinals collections.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Bitcoin

Taproot Wizards on sale 2 years after being inscribed on Bitcoin

Macauley Peterson

Taproot Wizards, the group behind Bitcoin inscriptions, wants to revive an old idea first implemented by Bitcoin’s creator in its early days.



A bit of code — an opcode, short for &#8220;operation code&#8221; — known as OP_CAT was part of Bitcoin&#8217;s original scripting system and was used to concatenate (hence the “CAT”) two strings.



You can think of an opcode as a step in a recipe, like &#8220;chop the onions&#8221; or &#8220;boil water.&#8221; It tells the computer (or in this case, the Bitcoin network) what to do with the data it has. For example, an opcode might tell the network to add two numbers together, check if one number is larger than another, or combine two pieces of data.



Each opcode is a basic building block that, when combined with others, creates the complex rules and conditions for how transactions operate on the blockchain. Many opcodes remain active from that time period.



Several opcodes, including OP_CAT, were disabled by <a href="https://app.blockworksresearch.com/glossary#satoshi-nakamoto">Satoshi Nakamoto</a> in 2010, over concerns about potential vulnerabilities affecting the young and fragile network. Satoshi worried it might be used to launch a denial-of-service (DoS) attack, for instance.



But Udi Wertheimer of the Taproot Wizards, which promotes <a href="https://blockworks.co/tag/ordinals">Ordinals</a>, thinks it’s high time this particular opcode was reinstated.



“It&#8217;s not a full-blown smart contracting language like on Ethereum or Solana, but it does enable a lot of functionality that we couldn&#8217;t do before,” Wertheimer told Blockworks, citing decentralized exchanges and bridging assets as examples.



Unlike Ethereum, Bitcoin’s programmability was intentionally limited, to keep it simple and secure.



Re-enabling OP_CAT, however, is a relatively simple change to Bitcoin Core code, involving only around 10 lines of code, Wertheimer said.



Bitcoin is notoriously difficult to change, governed by a slow moving consensus process among a few dozen developers who update the software, which then must be adopted by the thousands of full nodes, including miners, to take effect.



One advantage of OP_CAT, like another recent proposal to expand Bitcoin’s utility, BitVM, is that it would not require a <a href="https://app.blockworksresearch.com/glossary#hard-fork">hard fork</a> — the most contentious type of change. Instead, OP_CAT would need only a <a href="https://app.blockworksresearch.com/glossary#soft-fork">soft fork</a>, which requires less coordination among stakeholders. The last one occurred in 2021, with the <a href="https://blockworks.co/news/btc-price-flat-after-taproot-lightning-network-continues-to-grow-markets-wrap">activation of Taproot</a>, which made Ordinals possible.



Read more: <a href="https://blockworks.co/news/bitcoin-virtual-machine-smart-contracts-ethereum">Bitcoin research expands on design space for smart contracts&nbsp;</a>



“[OP_CAT] actually enables bridging which — I think even [BitVM proponent] Robin Linus would agree — without some sort of soft fork, BitVM in practice would be difficult to use,” Wertheimer said.



BitVM doesn’t necessarily require any sort of fork but Wertheimer said Linus is a supporter of OP_CAT, because it can make it easier to accomplish his own project’s goals.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">CAT can optimize BitVM in many ways! Firstly, covenants enable non-interactive setups. Second, Merkle inclusion proofs may enable more efficient memory for stateful contracts than bit commitments.&mdash; 😸 яobin linus (@robin_linus) <a href="https://twitter.com/robin_linus/status/1721880658824597787?ref_src=twsrc%5Etfw">November 7, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Some Bitcoin forks, such as Bitcoin Cash, have re-enabled OP_CAT already. As part of a broader effort to increase the script capabilities of Bitcoin Cash, developers <a href="https://upgradespecs.bitcoincashnode.org/may-2018-reenabled-opcodes/">brought back</a> the opcode in May 2018.



Some of the uses of OP_CAT in Bitcoin Cash involve the creation and management of tokens,&nbsp;payment channels, and methods for embedding and retrieving data on the blockchain.



The opcode is also enabled on <a href="https://blockworks.co/news/bitcoin-infrastructure-firm-blockstream-reaches-unicorn-status-with-3-2b-valuation">Blockstream’s Liquid</a> side chain, where it facilitates decentralized token exchange.



<h2 class="wp-block-heading">Quantum Cats</h2>



Unlike some blockchain networks’ NFTs, which consist of metadata pointing to off-chain assets, inscriptions on Bitcoin are fully on-chain and immutable. But that doesn’t mean they have to be static.



Taproot Wizards set out to create “evolving inscriptions,” which are pre-programmed to reveal new characteristics progressively.



Quantum Cats is a limited edition set of 3,333 cat images, revealed in full on Friday after being minted in a mysteriously expensive transaction last week.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">BREAKING: Someone just spent &gt;1 BTC to inscribe 8.93 MB of raw binary data into Bitcoin. Can anybody decode it to find out what it is? → <a href="https://t.co/PAaKCWVDus">https://t.co/PAaKCWVDus</a> <a href="https://t.co/wIpOsgwmhF">pic.twitter.com/wIpOsgwmhF</a>&mdash; Ord.io (@ord_io) <a href="https://twitter.com/ord_io/status/1743768753991500155?ref_src=twsrc%5Etfw">January 6, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The full collection was revealed on Friday. The encrypted data is what will allow the images to change over time —&nbsp;Wertheimer said there would be “a bunch” of changes but declined to say how many could be expected or to specify the timeline.



“The process of making it was really fun because we had to try to anticipate what was going to happen — because once we put it in there, we can&#8217;t touch it anymore,” he explained.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">this inscription ✨evolved✨ and i think it’ll ✨evolve✨ again<a href="https://twitter.com/QuantumCatsXYZ?ref_src=twsrc%5Etfw">@QuantumCatsXYZ</a> 🔔👀 <a href="https://t.co/KhDBhf84iC">pic.twitter.com/KhDBhf84iC</a>&mdash; Udi Wertheimer (@udiWertheimer) <a href="https://twitter.com/udiWertheimer/status/1745508731410940323?ref_src=twsrc%5Etfw">January 11, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The first, a 1-of-1 “Genesis Cat” by Taproot Wizards artist “FAR” will be <a href="https://www.sothebys.com/en/buy/auction/2024/natively-digital-an-ordinals-curated-sale">sold</a> at auction by Sotheby&#8217;s starting today through Jan. 22.



It’s essentially a marketing campaign for the work of Bitcoin developers.



“I think that can bring a lot of attention and basically celebrate the fact that there are developers who&#8217;ve been working on OP_CAT and perfecting it for the last five years, and people barely know about it,” Wertheimer said. “The behind the scenes work is very technical, very political, and it&#8217;s very hard for people to get exposure to what&#8217;s really going on.”



By contrast, Ethereum developers plan, debate, code and upgrade the chain fully in public, with major features like <a href="https://blockworks.co/tag/eip-1559">EIP-1559</a>, <a href="https://blockworks.co/tag/ethereum-merge">the Merge</a> and <a href="https://blockworks.co/news/ethereum-improvement-proposals-2024">Proto-Danksharding</a> promoted to great fanfare.



Taproot Wizards want to bring a similar rallying energy to Bitcoin improvements.



“I know a lot of people think that Bitcoin shouldn&#8217;t change,” said Wertheimer. “I think Bitcoin should be very slow to change and very careful, very deliberate to change.”



Bitcoin is still too young to fully ossify, he argues, lamenting that the governance process is “somewhat broken.”



“Almost the entire technical community is in agreement that there will be more upgrades, but there is difficulty in figuring out which ones,” he said.



But change is necessary.



“Bitcoin as it is today just cannot yet serve billions of people.”



Correction Jan. 12 at 10:58 am ET: Software developer Casey Rodarmor introduced the idea of &#8220;ordinals&#8221; in early 2023.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Satoshi-era Bitcoin code idea gets a boost from Taproot Wizards

Casey Wagner

<div id="highlights-block_624da9268198b" class="highlights">
 <ul>
 <li>Taro aims to combine the security and stability of the Bitcoin network with the speed and scalability of Lightning</li>
 <li>Users will be able to send many global currencies quickly and for low fees, the company said</li>
 </ul>
 
</div>



Lightning Labs, a startup building payments infrastructure on the Bitcoin network, is creating a new protocol that will allow users to send cross-border payments faster and for lower fees, the company announced Tuesday.



Taro, which will be supported by the layer-2 protocol Lightning, aims to combine the security and stability of the Bitcoin network with the speed and scalability of Lightning, Ryan Gentry, business development lead at Lightning Labs, said in the <a href="https://lightning.engineering/posts/2022-4-5-taro-launch/" target="_blank" rel="noreferrer noopener">announcement</a>.



“This is what a lot of people get wrong about bitcoin,” Elizabeth Stark, co-founder and CEO of Lightning Labs, said in a statement. “It can be a medium of exchange without being [a] unit of account. Many users in the future will be using bitcoin without even knowing it.”



The project, which is still in the development stage, aims to “bitcoinize the dollar,” Lightning Labs said. It will allow users to route various global currencies through bitcoin by using stablecoins, making for seamless, instant payments at very low fees, the team added.



“We’ve talked to myriad community members in emerging markets who’ve told us what a big difference stablecoins on bitcoin and Lightning would make in their economies,” the company wrote in a <a href="https://medium.com/@lightning_labs/number-of-people-go-up-or-bitcoin-as-the-worlds-protocol-of-value-d1df7cefca37" target="_blank" rel="noreferrer noopener">statement</a>.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Taro makes sending assets like these possible using the bitcoin network with the instant, high volume, low fee nature of Lightning.”</blockquote>



Taro allows bitcoin to act as a “protocol of value,” Gentry said, by allowing app developers to integrate other assets alongside bitcoin on the blockchain and over the Lightning network.&nbsp;



The new functionality for Lightning was enabled by <a href="https://cms.blockworks.co/anticipating-bitcoins-taproot-upgrade-heres-what-you-need-to-know/" target="_blank" rel="noreferrer noopener">the Taproot upgrade</a> to Bitcoin in November, one of its most significant updates to the network since 2017.



“This expands the reach of Lightning Network as a whole, bringing more users to the network who will drive more volume and liquidity in bitcoin and allowing people to easily transfer fiat for bitcoin in their apps,” he added.&nbsp;



Alongside the Taro launch, Lightning Labs also announced its $70 million Series B fundraise from investors including Valor, Brevan Howard and NYDIG.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

New Lightning Labs Protocol Promises Faster, Cheaper Payments

Sam Martin

<div id="highlights-block_617725d07bf3f" class="highlights">
 <ul>
 <li>The Bitcoin Network has successfully implemented the highly anticipated Taproot upgrade</li>
 <li>Paraswap announced a new airdrop strategy in an attempt to out-smart &#8216;airdrop hunters&#8217;</li>
 </ul>
 
</div>



Taproot is officially live as Bitcoin successfully underwent its largest upgrade in roughly four years. 



The Bitcoin Lightning Network continues to expand its channel count, node count and liquidity. 



Senators Lummis and Wyden propose a bill to clarify tax reporting requirements for industry players. 



Paraswap rolled out a retroactive airdrop of its token PSP, allocating 7.5% of the 2 billion token supply to early, active users.



NFTs are seeing a resurgence in volume to kick off the week. 



<h3 class="wp-block-heading">Latest in Macro:</h3>



<ul class="wp-block-list"><li>S&amp;P 500: 4,682, +.00%</li><li>NASDAQ: 15,853, -.04%</li><li>Gold: $1,862, -.14%</li><li>WTI Crude Oil: $80.95, +.20%</li><li>10-Year Treasury: 1.625%, +.041%</li></ul>



<h3 class="wp-block-heading">Latest in Crypto:</h3>



<ul class="wp-block-list"><li>BTC: $64,011, -.19%</li><li>ETH: $4,569, +.44%</li><li>ETH/BTC: .0716, +1.56%</li><li>BTC.D: 43.45%, -.57%</li></ul>



<h3 class="wp-block-heading">Taproot</h3>



Yesterday, Bitcoin block 709,632 was processed and the <a href="https://cms.blockworks.co/anticipating-bitcoins-taproot-upgrade-heres-what-you-need-to-know/" target="_blank" rel="noreferrer noopener">Taproot upgrade</a> was activated. This is widely considered to be the largest update to Bitcoin in the past four years.



The Taproot upgrade enables Schnorr signatures, taproot and tapscript, according to a <a href="https://kraken.docsend.com/view/9e9y7may8526z934" target="_blank" rel="noreferrer noopener">Kraken Intelligence paper</a>. While users should not expect Ethereum-like smart contract capabilities, it is a big step that lays the ground work for innovation atop of the Bitcoin network. 



Noelle Acheson, Head of Market Insights at Genesis, noted the important enhancements in an email to Blockworks: 



<ul class="wp-block-list"><li>It will boost Bitcoin’s smart contract functionality, potentially broadening its use cases.</li><li>It increases privacy by obscuring what type of transaction is being executed.</li><li>Bitcoin transactions will become more data-efficient, which could optimize block capacity and lead to lower transaction fees.</li><li>Taproot&nbsp;makes transactions on the Lightning Network more flexible and more private, which should further boost Bitcoin adoption.</li></ul>



A rough timeline of the Taproot upgrade from birth to implementation:



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="750" height="609" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-3.01.24-PM.png" alt="" class="wp-image-11195" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-3.01.24-PM.png?w=750 750w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-3.01.24-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-3.01.24-PM.png?w=317 317w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-3.01.24-PM.png?w=321 321w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-3.01.24-PM.png?w=270 270w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-3.01.24-PM.png?w=80 80w" sizes="auto, (max-width: 750px) 100vw, 750px" /><figcaption>Source: Kraken Intelligence</figcaption></figure></div>



<h3 class="wp-block-heading">The Lightning Network</h3>



The Lightning Network (LN) is a protocol that enables high­-volume, low­-latency digital micropayments without the need for trusted intermediaries, according to the project&#8217;s <a href="https://lightning.network/lightning-network-technical-summary.pdf" target="_blank" rel="noreferrer noopener">website</a>. Using novel Bitcoin multi-signature transactions and scripts, Lightning participants do not give unilateral custody of funds to a third party, reducing transaction costs and counterparty risk.



Bitcoin node operators are able to download the Lightning Network daemon, fund their Lightning account, and begin opening channels in exchange for <a href="https://www.nasdaq.com/articles/how-to-operate-a-profitable-lightning-node-2021-03-01" target="_blank" rel="noreferrer noopener">some passive income</a>. 



<a href="https://defipulse.com/lightning-network" target="_blank" rel="noreferrer noopener">Defi Pulse</a> explains that because LN nodes (i.e., users in LN channels) are interconnected, nodes do not always need to open a direct channel with everyone they want to transact with. Payments can be routed through other channels, provided that a path with adequate liquidity exists between the two transacting nodes.



The Lightning Network has seen massive growth over the past year, with the total number of channels open <a href="https://1ml.com/statistics" target="_blank" rel="noreferrer noopener">crossing 80,000</a> and the amount of liquidity continuously reaching all-time highs. The more channels and liquidity in the LN, the more useful it becomes. Some of this growth is likely attributed to the <a href="https://cloudtweaks.com/2021/07/how-bitcoin-brought-lightning-network-el-salvador/" target="_blank" rel="noreferrer noopener">adoption of BTC as legal tender</a> in El Salvador. 



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="700" height="450" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Unknown-2.jpg" alt="" class="wp-image-11200" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Unknown-2.jpg?w=700 700w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Unknown-2.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Unknown-2.jpg?w=400 400w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Unknown-2.jpg?w=406 406w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Unknown-2.jpg?w=341 341w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Unknown-2.jpg?w=80 80w" sizes="auto, (max-width: 700px) 100vw, 700px" /><figcaption>Source: lookintobitcoin.com</figcaption></figure></div>



<h3 class="wp-block-heading">Senators propose fix to crypto reporting laws</h3>



Senators Wyden and Lummis introduced a bill to narrow some of the cryptocurrency tax reporting rules in the Infrastructure Bill being signed into law today, according to a <a href="https://www.bloomberg.com/news/articles/2021-11-15/senators-seek-crypto-reporting-fix-as-biden-signs-infrastructure?sref=uaUCx1z2" target="_blank" rel="noreferrer noopener">Bloomberg article</a>. The primary goal of the proposal is to ensure innovation is not stifled due to a lack of clarity around reporting requirements in the bill.



“Our bill makes clear that the new reporting requirements do not apply to individuals developing blockchain technology and wallets,” Wyden said in a statement. “This will protect American innovation while at the same time ensuring those who buy and sell cryptocurrency pay the taxes they already owe.”



Senator Lummis, a long-time supporter of Bitcoin, has been very vocal about her concerns related to government spending and its resulting inflation. She took to <a href="https://twitter.com/CynthiaMLummis/status/1458475839641763844?s=20" target="_blank" rel="noreferrer noopener">Twitter</a> to say &#8220;Bottom line: Inflation is a reflection of the debasement of US dollars by the federal government. New spending is at the root of the price increases at your grocery store.&#8221;



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="731" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/goldvinflationvbtc-1024x731.jpg" alt="" class="wp-image-11203" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/goldvinflationvbtc-1024x731.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/goldvinflationvbtc-1024x731.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/goldvinflationvbtc-1024x731.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/goldvinflationvbtc-1024x731.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/goldvinflationvbtc-1024x731.jpg?w=360 360w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/goldvinflationvbtc-1024x731.jpg?w=366 366w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/goldvinflationvbtc-1024x731.jpg?w=307 307w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/goldvinflationvbtc-1024x731.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/goldvinflationvbtc-1024x731.jpg?w=2000 2000w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Ycharts</figcaption></figure>



Despite the successful implementation of Taproot, red-hot inflation numbers and a positive regulatory proposal, the BTC price has traded flat to negative over the last 24 hours. BTC was last hovering near $64,000, down roughly .5% on the day. 



<h3 class="wp-block-heading">Paraswap airdrop</h3>



Paraswap, a decentralized exchange (DEX) aggregator that provides rates over multiple DEXs on the Ethereum blockchain, airdropped its token (PSP) to certain users this morning. Roughly 20,000 addresses were allocated 7.5% of the 2 billion PSP token supply. 



The Paraswap team noticed a large amount of &#8216;airdrop hunters&#8217; and chose to select eligible recipients based on various usage metrics from a snapshot taken on Oct. 8, rather than airdropping tokens to every wallet that used Paraswap. Paraswap detailed its plan in a company released medium <a href="https://medium.com/paraswap/whats-an-active-user-clarifying-psp-token-distribution-filtering-logic-81df6096d410" target="_blank" rel="noreferrer noopener">article</a>, however, the airdrop led to confusion and discontent among users.



An overview of the PSP airdrop can be seen in the following photo:



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="492" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.41.33-PM-1024x492.png" alt="" class="wp-image-11188" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.41.33-PM-1024x492.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.41.33-PM-1024x492.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.41.33-PM-1024x492.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.41.33-PM-1024x492.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.41.33-PM-1024x492.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.41.33-PM-1024x492.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.41.33-PM-1024x492.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.41.33-PM-1024x492.png?w=1404 1404w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Dune Analytics</figcaption></figure></div>



<h3 class="wp-block-heading">Non-Fungible Tokens (NFTs)</h3>



NFTs are starting to see signs of life after a rough week last week. Bored Ape Yacht Club and its&#8217; Mutant derivative have seen a lot of attention today. Trading data from <a href="https://opensea.io/rankings" target="_blank" rel="noreferrer noopener">OpenSea</a> and <a href="https://solanalysis.com" target="_blank" rel="noreferrer noopener">Solanalysis</a> of some of the top Solana and Ethereum projects can be found below:



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="332" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.37-PM-1024x332.png" alt="" class="wp-image-11189" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.37-PM-1024x332.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.37-PM-1024x332.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.37-PM-1024x332.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.37-PM-1024x332.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.37-PM-1024x332.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.37-PM-1024x332.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.37-PM-1024x332.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.37-PM-1024x332.png?w=1238 1238w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Top Ethereum Projects</figcaption></figure></div>



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="283" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.45-PM-1024x283.png" alt="" class="wp-image-11191" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.45-PM-1024x283.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.45-PM-1024x283.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.45-PM-1024x283.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.45-PM-1024x283.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.45-PM-1024x283.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.45-PM-1024x283.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.45-PM-1024x283.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/11/Screen-Shot-2021-11-15-at-2.42.45-PM-1024x283.png?w=1214 1214w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Top Solana Projects </figcaption></figure></div>



If you made it this far, thanks for reading! I am looking forward to catching up tomorrow.



<hr class="wp-block-separator"/>



Get the day’s top crypto news and insights delivered to your inbox every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.



<hr class="wp-block-separator"/>

BTC Price Flat After Taproot, Lightning Network Continues to Grow: Markets Wrap

Sam Reynolds

<div id="highlights-block_618ed07be2e5e" class="highlights">
 <ul>
 <li>The first major upgrade to the Bitcoin network since 2017 occurs this weekend</li>
 <li>&#8220;Bitcoin Core is now officially out of beta! 🚀 &#8220;, wrote Bitcoin developer Matt Whitlock in a discussion of the new version 22.0</li>
 </ul>
 
</div>



The Bitcoin network is activating Taproot, one of its most significant updates since 2017, when Segregated Witness, also known as “SegWit,” was first integrated to address bitcoin’s scaling problem.



According to <a href="https://www.nicehash.com/countdown/btc-forking-2021-11-15-12-00" target="_blank" rel="noreferrer noopener">NiceHash’s countdown timer,</a> the move to Taproot is scheduled to take place early Sunday UTC. The upgrade seeks to address the bitcoin network’s 2021 problem, which is programmability.&nbsp;



With the Cambrian explosion-like growth of decentralized finance (DeFi) during the last year, where its total locked-in value rocketed to nearly $100 billion, bitcoin effectively sat on the sidelines. Sure, bitcoin can be used as collateral via an Ethereum wrapper, but the lack of Bitcoin’s programmability meant its reliance on these projects to access DeFi markets.&nbsp;



Tapscript, Taproot’s programming language, will attempt to solve this. While not as powerful as the programming languages available on the Ethereum Virtual Machine, it’s miles ahead of the primitive scripting language currently available to the Bitcoin network.



<h3 class="wp-block-heading">A Bitcoin Core milestone</h3>



The governance of Bitcoin Core — which, to avoid confusion, Blockworks refers to canonically as simply &#8216;Bitcoin&#8217; — is a slow and deliberative process. In fact, the Taproot upgrade marks a visible shift in Bitcoin history: its version number. Despite the original release of v0.1 having been <a href="https://satoshi.nakamotoinstitute.org/emails/cryptography/16/" target="_blank" rel="noreferrer noopener">way back on January 8, 2009</a>, the intervening 12 years have seen the version number rise to just 0.21.1. At that rate, Bitcoin would not reach a 1.0 version until the late 2060s!



Instead, the project&#8217;s core contributors <a href="https://github.com/bitcoin/bitcoin/pull/20223" target="_blank" rel="noreferrer noopener">reached a consensus</a> in late 2020 to call the version that activates Sunday <a href="https://bitcoin.org/en/releases/22.0/" target="_blank" rel="noreferrer noopener">v22.0</a>. The rationale from the original proposer was simple. &#8220;Honestly I&#8217;m just tired of all of the people asking for &#8216;1.0&#8217; that maybe this&#8217;ll shut them up. Skip the whole 1.0 thing and go straight to version 22.0!&#8221; he wrote on October 22, 2020. 



After over a month of discussion, at a time when bitcoin was trading hands for around $18,500, developer Matt Whitlock chimed in with a comment that looks prescient in retrospect:



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;I&#8217;m surprised nobody mentioned the obvious implication here:&nbsp;Bitcoin Core is now officially out of beta!&nbsp;🚀 &#8230; Advancing the version number to something greater than 1.0 sends the signal that the software is now ready for prime time.&#8221; </blockquote>



One small step, but a step that reflects the maturity of a network that now secures $1.2 trillion in BTC assets. 



<h3 class="wp-block-heading">Learning from the past</h3>



Since 2017, the analytical toolkits available to track movement and flow of that BTC on the Bitcoin network has also dramatically increased in availability and granularity. Nansen, <a href="https://cms.blockworks.co/andreessen-horowitz-leads-12m-funding-round-for-nansen/" target="_blank" rel="noreferrer noopener">which closed a $12 million round</a> this summer, offers the ability for its users to seek actionable trading opportunities by monitoring fund flow from whale or institutional wallets.&nbsp;



Taproot aims to solve this problem through something called the Schnorr Signature algorithm.&nbsp;Schnorr Signatures allow for all digital signatures on a transaction to be combined into one, so a Lightning transaction would not appear to be much different from a regular one. This boosts privacy and allows tighter integration of Lightning into the Bitcoin network, which reduces transaction costs due to combining transactions.



Unlike the introduction of SegWit, which triggered considerable debate among the Bitcoin community and led to the creation of bitcoin cash, Taproot doesn’t seem to have much, if any, opposition. According to a mining pool tracker, <a href="https://taprootactivation.com/">Taproot-</a><a href="https://taprootactivation.com/" target="_blank" rel="noreferrer noopener">Activation</a>, nearly all mining pools have approved the upgrade.



Likewise, the price of bitcoin hasn’t moved much as the activation date got closer. It was trading at $64,200 with 8 hours to go before the upgrade, according to <a href="https://www.coingecko.com/en/coins/bitcoin" target="_blank" rel="noreferrer noopener">CoinGecko</a>, up about 5% in the last 14 days.&nbsp;By contrast, during the SegWit upgrade, the price of bitcoin rallied in anticipation, and nearly doubled afterward.



Macauley Peterson contributed reporting for this story.



<hr class="wp-block-separator"/>



Get the day’s top crypto news and insights delivered to your inbox every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.



<hr class="wp-block-separator"/>

Taproot

Newsletter

Blockworks Research