New ETF Speculation and Innovations, Including Taproot Assets, Redefine Its Landscape

Everybody’s talking about the surge in the bitcoin (BTC) price as anticipation heats up over new spot ETFs. But there’s a lot of activity happening in Bitcoin tech development – with innovations that might help the original and oldest blockchain to catch up with the boom of projects building in the Ethereum ecosystem. In this week’s Network News, we dive into the significance of Lightning Labs’ release of “Taproot Assets.”

For our feature this week, our Margaux Nijkerk brings a colorful profile of an Ethereum Foundation security researcher who spends his time (sometimes working out of an Airstream parked in the mountains) scouring the Ethereum blockchain for any vulnerabilities – including a technique known as “fuzzing.”

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Schematic of a “replacement cycling attack” on Bitcoin’s Lightning Network. (Mononaut)

BITCOIN BLOSSOMS: It’s not just bitcoin’s price that’s suddenly exploding – thanks to speculation that U.S. regulators might approve new exchange-traded funds or ETFs allowing traditional investors to ape in. There’s also an upsurge in new products and technologies claiming to enhance the oldest and largest blockchain. Just two weeks ago, The Protocol covered the details of Robin Linus’s research paper on “BitVM,” proposing a way of incorporating smart contracts onto Bitcoin. The development offered yet another manifestation of Bitcoin getting Ethereum-style features that many members of the community had previously resisted – recalling the explosion earlier this year of “Bitcoin NFTs” via the Ordinals protocol. Now there’s another: Taproot Assets, a project from the developer Lightning Labs that would enable the issuance of stablecoins and other digital assets on Bitcoin and the layer-2 Lightning Network. “This release marks the dawn of a new era for Bitcoin,” Ryan Gentry, director of development at Lightning Labs, wrote in a blog post last week, while quickly adding that the project “upholds Bitcoin’s core values.” On the question of whether Taproot Assets might cause congestion on Bitcoin similar to what happened after Ordinals debuted, Gentry told CoinDesk it isn’t likely. ​​”The protocol only requires an issuer to make a single bitcoin transaction to mint an effectively unbounded amount of Taproot Assets, and all of the metadata describing those assets is stored off-chain, with only a cryptographic commitment to the assets stored on-chain,” Gentry wrote in a direct message. “Further, transacting with Taproot Assets over the Lightning Network will happen off-chain and will not touch the blockchain at all.” The crypto analysis firm Messari summed it all up in a report on Wednesday: “Developers have embraced the network’s inherent constraints and learned to innovate on top of the base layer.”

RISK MITIGATION: Bitcoin developer Antoine Riard’s warning over “replacement cycling attacks” on the Lightning Network has drawn buzz and yuks on social media, as experts rushed to explain the extent of the risk and offered suggestions for a fix. The gist of it is that these attacks rely on a deep understanding of the arcana of “hashed time locked contracts,” or HTLCs, which are a type of conditional payment used in Lightning Network payment channels. According to the Bitcoin Optech newsletter on Wednesday: “Since the disclosure, implementations have been updated to include mitigations for the attack and we strongly recommend upgrading to the latest version of your preferred LN software.” Those include more frequent rebroadcasting of transactions, though such steps aren’t likely to bridge the gap. Bitcoin Optech noted that, since Riard’s disclosure of the vulnerability, more than 40 separate posts have been made to developer mailing lists offering “proposed additional mitigations.”

The Aptos blockchain suffered its first major transaction delay, lasting five-plus hours and attributed to “a non-determinism” introduced by a code change in August that only became apparent last week.

In Argentina’s presidential election, pro-Bitcoin (and self-described anarcho-capitalist) Javier Milei heads to run-off election against Sergio Massa, the current finance minister.

Highlighting blockchain tech upgrades and developments.

2. Polygon, the Ethereum scaling solution, released a proposal to create a “Polygon Protocol Council” in a push toward a more decentralized governance style, and named 13 inaugural members including officials from Coinbase and the Ethereum Foundation.

4. Lightspark, the Lightning Network-focused payments protocol led by David Marcus, creator of Facebook owner Meta’s since-abandoned to launch the Libra (later renamed Diem) stablecoin, announced the open-source Universal Money Address (UMA) standard, according to a blog post.

5. The Index Coop, a DAO focused on on-chain structured products, launched a new “Index Coop CoinDesk ETH Trend Index (cdETI), a tokenized implementation of CoinDesk Indices’ Ether Trend Indicator, which is “designed to take advantage of ETH’s price volatility, without the need for constant market monitoring and active trading,” according to a press release.

CoinDesk’s Shaurya Malwa wrote an interesting story this week about a spike in Ethereum fees as a result of a frenzy of activity from traders trying to get their transactions included on the blockchain – as crypto markets heat up. But as the chart below shows, average daily fees remain quite low by historical standards, ostensibly due to the pall of crypto winter, which has curbed demand for blockspace; there’s little congestion. The fee levels are just a 10th of what they were at this year’s muted peak, reached in May.