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Since Satoshi Nakamoto mined the Bitcoin genesis block in 2009, the Bitcoin blockchain has gone through numerous updates and changes aimed at mending its shortcomings and improving the protocol’s overall functionality. These updates and changes are outlined as proposals and are commonly referred to as BIPs, which is short for Bitcoin improvement proposals.
What is a Bitcoin Improvement Proposal? (BIP)

In essence, BIPs are design documents that lay out the features or information to be added to or changed in the protocol. They are designed by developers and then subsequently voted on by miners. A BIP is passed and incorporated into the protocol if it is upvoted by at least 95% of Bitcoin’s mining community.

BIP Essentials

  • A Bitcoin improvement proposal (BIP) is a document specifying the features and information to be integrated into the Bitcoin protocol.
  • There are three types of BIPs:
  1. Standards track BIPs – alter the protocol or transaction and block validation;
  2. Informational BIPs – draw attention to design issues and general guidelines;
  3. Process BIPs – propose changes to the process.
  • BIPs must go through the following stages to be activated:
  1. Review by an editor;
  2. Approval by the miners;
  3. The community must upgrade to the new protocol version to benefit from the BIP’s novel functionality.

Three types of BIPs

There are three major types of Bitcoin improvement proposals that differ from one another in terms of the improvements they describe or propose. The three different types are as follows:

  1. Standards track BIPs are BIPs used for making changes to the network protocol or to the methods of transaction or block validation. Standards track BIPs are also aimed at optimizing the interoperability between the two versions of the Bitcoin protocol that coexist in the event of a fork. This type of BIPs always require community consensus.
  2. Informational BIPs are BIPs that draw attention to design issues, general guidelines and supporting information. Informational BIPs, as the name itself suggests, are only there for information’s sake. It does not matter whether the community takes them seriously or ignores them altogether.
  3. Process BIPs are BIPs that describe or propose a change in the process. They are similar to Standards track BIPs and require community consensus. They cannot be ignored, but unlike Standards Track BIPs, they are applied outside the Bitcoin protocol.

Soft-fork and hard-fork BIPs

Like any blockchain software modification, BIPs require the Bitcoin blockchain to be forked in order to be implemented. They can be implemented with either a soft fork or a hard fork, depending on whether the proposed change retains compatibility between the branches. A BIP that is introduced by means of a soft fork retains the cross-compatibility of different blockchain versions, whereas a BIP that requires a hard fork does not.

However, BIP forks should not be confused with user-activated forks. While both types of forks implement protocol upgrades, their adoption process differs greatly. Hard-fork BIPs, for instance, require the entire Bitcoin economy to adopt the proposal, whereas user-activated hard forks (UAHFs) do not. It can be noted that, to date, no hard-fork BIPs have yet been implemented, which is why this article focuses predominantly on soft-fork BIPs.

And while the decision on whether to adopt a hard-fork BIP lies in the hands of the Bitcoin economy – i.e. all BTC wallet owners and merchants who support BTC payments – soft-fork BIPs work differently. The adoption of soft-fork BIPs is up to miners. They can express their support for a certain BIP by including relevant data in the blocks they have mined. A soft-fork BIP is considered to have been approved if at least 95% of miners on the Bitcoin blockchain adopt the proposal.

Once approved by miners, a soft fork is implemented which introduces a stricter set of rules. To be able to use the novel functionality proposed in the BIP, the community (this includes miners, full nodes, exchanges, payment service providers, etc.) will have to upgrade their software to the new version.

Each BIP is assigned a label which specifies the status of that BIP. A BIP receives its first status, i.e. “Draft,” once it has been checked by the first editor. Then, the author may assign the label “Deferred” or “Withdrawn.” Alternatively, a BIP labelled “Draft” may also receive the label “Rejected” or “Approved” from the network community.

For a soft-fork BIP to be labeled “Final,” the following three criteria must be met (according to BIP-009):

  1. The BIP follows the correct format as specified in BIP-1;
  2. The BIP includes code implementations of the proposed changes to the protocol;
  3. The BIP has 95% support from the last 2016 miners (these span over the past period of approximately 14 days’ worth of mining 10-minute blocks).

Over 130 BIPs have been proposed as of the writing of this article. The entire history can be accessed at this link.

Notable examples of BIPs

The first BIP to have been implemented was BIP-1. It was submitted by Amir Taaki in 2011. It provided a detailed presentation of what BIPs should look like, defining the format and structure of all the BIPs to come.

Perhaps one of the most notable Bitcoin improvement proposals was Segregated Witness, or SegWit. First presented at the Scaling Bitcoin conference in December 2015, SegWit was outlined in BIP-91, BIP-141 and BIP-148. Its aim was to fix transaction malleability and make it impossible to modify transaction IDs. With the soft-fork threshold at 95%, SegWit was successfully adopted by the Bitcoin mining community around mid-September 2017. Having fixed transaction malleability, Segregated Witness made it possible to develop the Lightning Network, a layer 2 solution designed specifically for Bitcoin (and altcoin blockchains).

Another notable example is Merkelized Abstract Syntax Tree, or M.A.S.T., which was outlined in BIP-116 and BIP-117. M.A.S.T. is a cryptographic tool that enables complicated data sets to be added to the data associated with Bitcoin transactions. While M.A.S.T. makes it possible to further specify data, it simultaneously reduces the amount of data that needs to be recorded on the blockchain.

With ongoing developments in terms of BIPs, the Bitcoin community tries to make the Bitcoin protocol run as smoothly as possible. In addition to the fact that bitcoin is the largest cryptocurrency by market cap, it is also this continuous development that makes the rapidly-evolving and expanding blockchain network so attractive to crypto traders.

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