The data shows that usage of the Bitcoin main root is now at a new all-time high, thanks to the appearance of Ordinals on the network.
Bitcoin Taproot usage hits new all-time high of 4.2%
According to the latest weekly report from Glassnode, both Taproot adoption and usage have reached an all-time high recently. Taproot is a BTC upgrade that made some changes to how transactions are processed to make it faster and more efficient. Upgrade started in November 2021.
“Taproot Adoption” here is a metric that tells us how much adoption an upgrade has seen among users on the network. The indicator is inspired by the one created by the community to monitor SegWit adoption (SegWit is another BTC protocol launched in 2017).
Like SegWit adoption, Taproot adoption determines adoption based on the percentage of total Bitcoin transactions that have at least one Taproot entry included in them.
This methodology, however, has a major drawback. A Glassnode report on SegWit adoption from last year summarized the problem using the example in the figure below:
Three examples of BTC transactions | Source: Glassnode
In this example, the central transaction contained one SegWit entry (and four legacy entries), while the right transaction contained five SegWit entries. Since the SegWit dependency index only cares about the number of transfers that have at least one such entry, both core and valid transactions will be considered SegWit transactions.
Since two-thirds of the conversions here are SegWit according to the indicator, the adoption would be worth 66%. However, this is clearly not an accurate representation of the actual usage of the protocol, as the indicator ignores the nitty-gritty of transactions.
To solve this problem, Glassnode has come up with a “Usage” metric, which counts virtually all of the consumed output involved in the transfer and calculates the value based on their total. If this new indicator were applied to the example above, the utilization would be as high as 40% as only 6 of the 15 entries here are made with SegWit ready-made.
Going back to Taproot, the same methodology can also be applied to judge acceptance of this Bitcoin upgrade. Below is a chart showing the trend in Taproot’s adoption of the 7-day moving average (MA), as well as use, since the upgrade began in November 2021:
The 7-day MA values of both the metrics seem to have shot up recently | Source: Glassnode's The Week Onchain - Week 7, 2022
As shown in the chart above, the adoption and use of the 7-day bitcoin root MA has been rising rapidly recently and has reached all-time highs of 9.4% and 4.2%, respectively. The credit here is more than twice used, which shows how misleading the picture presented by the previous indicator is.
The reason behind this sudden surge in Taproot usage is the rise of Ordinals in the market. Ordinals is a protocol that Taproot uses to insert data into the witness portion of a BTC transaction.
In simple terms, what Ordinals allows the user to do is attach things like images to BTC transactions, which is what gave rise to Non-Fungible Tokens (NFTs) on the blockchain. With NFTs quickly gaining popularity, it’s no surprise that Taproot has also been seeing significantly more usage.
At the time of writing, Bitcoin was trading at around $21,800, down 5% in the past week.
BTC continues to move sideways | Source: BTCUSD on TradingView
Featured image by Dmitry Demidko on Unsplash.com, charts from TradingView.com, Glassnode.com