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01 March 2021

Taproot Activation And The LOT Debate

Taproot Activation And The LOT Debate

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Well the way that Bitcoin soft forks work is that they introduce new rules to the consensus protocol, i.e., the rules by which a node decides whether a block is valid or not.

This means that, in theory, if a node activates a soft fork alone, it finds itself at risk of rejecting blocks that all of the other nodes still accept, essentially forking itself off to another chain that no miners work on, and no users want to transact on.

Now, if a small portion of the nodes coordinates to activate a soft fork, they will find themselves at the same risk as above.

They would still be able to transact with one another, assuming at least some miners will still dedicate work to mining its blocks, but they will lose a large part of the mining power, which will still be working on the un-forked chain, making their own fork less useful — since other nodes will not accept its transactions — and more vulnerable to 51 percent attacks.

It is only when the economic majority (nodes actively used for payment verification) of the network coordinates to enable the soft fork together that miners also find themselves at risk — as not upgrading means they might be working on a block which most users will reject, therefore making them waste resources on trying to get a mining reward which no one will accept.

Still, even when the economic majority of the network nodes has successfully coordinated and activated a change, if a significant portion of the miners insist on not enforcing the new rules and will not activate the soft fork, the risk of losing, at least temporarily, a large portion of the securing hash power, is imminent.

The “game theory” makes this the most undesirable outcome for all sides — miners risk losing money by mining blocks that the nodes will reject, and the nodes of the network risk loss of hash power and making their chain more vulnerable to attacks.

If the said threshold is reached, a final period of about two weeks (2,016 blocks, one difficulty adjustment) will start, after which the soft fork will be activated and the new rules enforced.

In this case, the nodes running the activation process will start rejecting any blocks which do not signal readiness for the upgrade.

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