Bitcoin Improvement Proposal (BIP)

8 mins read July 28, 2023

Bitcoin, the first cryptocurrency to exist, has caught millions of people's attention as one of the most innovative forms of money. After bitcoin's success, similar cryptocurrencies with varying purposes have also been invented, such as Ethereum, Litecoin, and thousands of others. Bitcoin remains the most widely used cryptocurrency with increasing adoption, necessitating an improvement to the system to make it more accessible to everyone.

Bitcoin offers incredible potentials technologically, but it has some limitations which make it difficult to adapt. There are changes necessary to modify bitcoin to suit the needs of the general population. The need for these modifications motivated what became known as the Bitcoin improvement proposal (BIP).

What is Bitcoin Improvement Proposal?

The Bitcoin Improvement Proposal (BIP) refers to the set of standards for proposing modifications to the Bitcoin protocol. This includes alterations to the process and sourcing of information for the Bitcoin community. In essence, BIP refers to a standard for making modifications or adding new information to the Bitcoin blockchain. Specific BIPs may also be proposed to make modifications to the BIP process itself.

Due to the decentralised nature of Bitcoin, a consensus must be reached before modifications can be made to the Bitcoin network. Therefore, BIP offers an avenue for individuals across the world to propose these modifications to the Bitcoin protocol. The Bitcoin Improvement Proposal, just like any other proposal, requires a detailed explanation and justification by its author about the new features or modifications being proposed. This proposal is then submitted to the Bitcoin community, where it is either accepted or rejected. Modifications cannot be made to a BIP if the community rejects it.

BIP seeks to enable consensus-based modifications to the bitcoin protocol, such as soft and hard forks. BIP could also enable changes to the seed framework and the BTC peer-to-peer layer. However, not all changes affect the core Bitcoin protocol, thus certain modifications by independent developers do not require a BIP. Modifications like security improvements and upgrades to the Bitcoin codebase require a Bitcoin Improvement Proposal, while modifications including code refactoring and bug fixes may not require a BIP as they can simply be submitted as proposed code changes.

Brief History of Bitcoin Improvement Proposal

The first Bitcoin Improvement Proposal was proposed by Amir Taaki, an early cryptocurrency developer, in 2011. This proposal set the precedence and format for subsequent BIPs. Taaki claimed to have found the inspiration for BIPs from the Python language's system of proposals for modification. Taaki noted that BIPs, when implemented efficiently, hold the key to the overall development of Bitcoin. Bitcoin would evolve to a more structured and accountable system under BIP's tutelage of the Bitcoin ecosystem.

Taaki submitted the first BIP, BIP 001, to the bitcoin community on August 19th, 2011. This document contained guidelines on the structure and standards BIPs should follow, taking inspiration from the process used to improve Python. The structure proposed by Amir Taaki was later to be improved by Luke Dashir. BIPs are publicly displayed on GitHub, leaving them accessible to the Bitcoin community and the world at large.

The structure of a Bitcoin Improvement Proposal (BIP)

The guideline proposed by Amir Taaki and subsequently modified by other developers highlights a structure that BIPs should follow. The structure of a BIP is as follows:

A preamble: This segment of the BIP has the BIP metadata included in the heading.

A brief summary: This includes a short description of about 200 words outlining the problem being addressed.

Copyright: This section focuses on outlining the BIP's accepted copyright terms.

Specifications: This segment focuses on a detailed description of the features of the new modification.

Motivation: The author in this section explains the inspiration for the proposal to clear doubt about its creations and significance to the bitcoin community

Justification: The author explains why certain design decisions were proposed and the significance of the BIP.

Backward compatibility: A new feature being introduced may be incompatible with previous versions. The author in this segment outlines these incompatibilities, the severity, and how the new modification would deal with these incompatibilities.

Reference implementation: Although a BIP doesn’t require this segment before it is accepted, it is required before the BIP can attain the status of “final.” This segment includes the suitable test code and the necessary documentation for the bitcoin protocol.

How BIPs are approved

A BIP has a life cycle, almost like any other type of proposal. The state a BIP is in determines its status. The process through which a BIP is approved is as follows:

Draft: The BIP at this stage is considered incomplete as it remains in its earliest filing state. Prior to its submission, an author may host discussions about the content of the BIP on Internet Relay Chats (IRC) channels, BTC-oriented mailing lists, among other platforms, to orient the BTC community to the specific BIP. The author at this stage may make modifications as they deem fit to the BIP.

Deferred: The BIP falls into this status when it often becomes postponed if there has been no progress on its development.

Proposed: At this stage, debates are held by the Bitcoin community to determine the prospects of the BIP. The community focuses on its explanatory element to determine its significance and justification.

Rejected: A BIP may fall under this category if, after weighing its prospect, the community decides against it.

Withdrawn: An author may also, on their own accord, decide to withdraw the BIP based on their personal choices after the proposal stage.

Final: After due considerations, the BIP is accepted if there is a community consensus on it. It is important to note that BIPs are not legally binding, and a user/developer retains the right to utilise them or not.

Replaced: A BIP may fall under this category when a subsequent BIP replaces it. This occurs when the new proposal has a more defined structure that offers a better approach to solving the problem presented by the previous BIP.

Obsolete: A BIP may fall under this category when the modifications suggested no longer hold water. This often occurs when other modifications implemented rendered the previous BIP unnecessary.

Types of BIP

There are three major types of BIP, which include:

Standard track BIPs:

The standard track BIP centres on modifications that affect most if not all of the bitcoin implementations. This includes a modification to the block data, BTC network protocol, or transaction validity rules. These BIPs may also seek to make alterations to the interoperability of applications that use bitcoin and its functions between two BIPs.

Informational BIPs

Informational BIPs, as the name suggests, seeks to raise awareness about a bitcoin design issue without proposing a new feature to the bitcoin community. These BIPs discuss general guidelines, bringing to light certain issues that a large percentage of the bitcoin community isn't aware of. Informational BIPs may offer suggestions and information that a user or developer may implement without requiring the consensus of the Bitcoin community. They outline evidence, data, and theoretical studies that validate their proposal. Informational BIPs are often motivated by private, business, or group investigations.

Process BIPs

The process BIP seeks to make a modification to the Bitcoin ecosystem's core process. The Process BIP is similar to the Standard Track BIP as they both entail significant changes to the Bitcoin status. Also, they can only be implemented through a consensus vote. The process BIP entails modifications outside the Bitcoin protocol and not to the bitcoin's codebase. These BIP modifications include changes to the guidelines, procedures, decision-making process, tools, and environment utilised in Bitcoin development.

Notable examples of BIPs

After Amir Taaki’s initial BIP, developers from across the globe have proposed several BIPs to address certain issues in the Bitcoin Network. Some of these BIPs include:

BIP-11: Standard M-of-N

The BIP-11, as proposed by Gavin Andresen, outlined a design to secure wallets and transactions that required more than a single signature.

BIP- 16: Pay to Script Hash

The BIP-16, as proposed by Gavin Andresen, suggested a means of managing Bitcoin Payment to facilitate a transaction through QR code.

BIP-141: SegWit

Segregated Witness, which is abbreviated as SegWit, focuses on the increased capacity of the Bitcoin Network. SegWit, also known as "followed," seeks to solve the transaction malleability problem. SegWit was proposed by some developers in 2015, who sought to upgrade Bitcoin's core. SegWit is popular because of its blockchain scaling proposition for modification. This proposition was then implemented via a soft fork. SegWit necessitated 95% of Bitcoin miners to complete the upgrade over a period of two (2) weeks. In simpler terms, SegWit is a BIP centred on blockchain scaling to enable more transactions to occur within a single Bitcoin block.

BIP-91

The BIP-91 proposed by James Hilliard in 2017 seeks to activate the SegWit proposition, however, with a lesser majority than 95%. The BIP-91 solution, just like the SegWit, is a soft fork proposal.

BIP-148

Similar to the SegWit, BIP-148 proposed a soft fork proposal to increase Bitcoin's transaction scalability. It noted that it would be user-activated and would only require about 50% of the bitcoin users to complete an upgrade.

Lightning Network

The lightning network BIP as proposed by Thaddeus Dryja and Joseph Poon seeks to improve Bitcoin scalability and enable instant transactions to take place off-chain. The Lightning Network BIP sought to make this possible by creating micropayment channels that would allow for the transfer of funds with protection from counterparty thefts. The BIP also proposed a solution to enable cross-chain payment and smart contract utilisation.

Other notable BIPs include BIP-114, BIP-116, and BIP-117, designed to generalize the concepts surrounding MAST. Some BIPs were also proposed to modify confidentiality and security features such as confidentiality transactions and Dandelion.

BIP and its implication on other cryptocurrencies

There's no limit to the potentials embedded within the Bitcoin Improvement Proposals. The impact of BIP isn't limited to Bitcoin but has spread across similar cryptocurrencies that have adopted its model. For example, Litecoin Improvement Proposals and Ethereum Improvement Proposals have been put in place for Litecoin and Ethereum respectively. Although these models base their initial design on the BIP, they have been modified to suit each cryptocurrency’s unique structure.

The impact of BIP in the cryptocurrency community is remarkable. It has shaped the Bitcoin network's organisation and structure, making information easily accessible to the public. BIP offers a cutting edge to the development of Bitcoin as a currency and continues to improve the foundation on which Bitcoin is set.

In conclusion...

Bitcoin Improvement Proposals (BIPs) make information easily accessible to the Bitcoin community. Bitcoin users and developers are able to participate in the improvement and modification of the network actively. BIP’s redefining structure has placed Bitcoin as cutting-edge technology. You can easily access needed information about BIPs on GitHub, where they are publicly displayed.

Disclaimer: This article is meant to provide general guidance and understanding of cryptocurrency and the Blockchain network. It’s not an exhaustive list and should not be taken as financial advice. Yellow Card Academy is not responsible for your investment decisions.