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Bitcoin Improvement Proposals (BIPs) – How do they work?

One of the main advantages of Bitcoin is its decentralized form of governance, which means that no one can have a monopoly on how the blockchain operates. However, because of that, the decision-making process regarding the functioning of this blockchain is more complex, and any process generally takes a long time to implement. 

The second quarter of 2022 has been the worst in 11 years if you consider the price drop of Bitcoin (as well as many altcoins). The appetite for crypto is lower. With that in mind, it is imperative for investors in BTC to understand how it operates. One key factor especially worth noting is Bitcoin Improvement Proposals (BIPs), since they are the base of any update to the BTC infrastructure. Let’s understand exactly what they are, and how they work. 

What is a BIP?

A Bitcoin Improvement Proposal is a formal proposal which suggests changes to how the blockchain operates. On a regular basis, the software needs to be upgraded, bugs need to be fixed, and algorithms can be made more efficient. 

Because this infrastructure does not belong to a single owner, BIPs are used to organize the entire Bitcoin community. If you already know how to trade Bitcoin, then you are probably aware that this cryptocurrency continues to lead the market in terms of price and capitalization. Decentralization attracted a lot of enthusiasts, especially since a BIP can be created and raised by anyone. 

Creating a BIP

Regardless of credentials or reputation, every member of the community has the same right to create a Bitcoin Improvement Proposal. These are informal proposals on the Bitcoin email list or some other communication channels, like IRC or Slack. 

When a developer sends a proposal, others can respond with feedback. Some ideas remain at the discussion level for years, simply because a consensus is not reached among all developers. However, once a proposal has been agreed, it receives an identification number and is published to the Bitcoin Core GitHub repository of BIPs. Even if the BIP is official at this stage, that does not mean it’s been approved or implemented. 

BIP approval process

Once a BIP is published, it is discussed by the developer community, as well as the broader community of Bitcoin users. In case it requires code changes to the Bitcoin core, developers get to work on writing, testing and implementing it. 

If arguments are raised by a significant number of users, the BIP is very likely to be withdrawn and rejected. On the other hand, if the community reaches a consensus, then an activation path is determined. 

Numerous BIPs have been implemented since Bitcoin came to life. One of the most well known BIPs is number 141, which integrated Segregated Witness (SegWit), expanding each block size from 1MB to 10MB. 

There are different types of BIPs, and they depend on the changes proposed. Some require restructuring the consensus rules and in this case, it eventually results in a fork. Other BIPs are about community standards, and they are suggestions that encourage interoperability of different BTC-related software. 

As you can see, the whole process is complex and generally takes a lot of time. Critics suggest that this might be the reason why the Bitcoin ecosystem lacks flexibility, in a world where new innovative blockchain projects constantly emerge.

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