What Are BIPs and Why Do They Matter?

Bitcoin, the world’s oldest and largest blockchain, has been around since 2011. Still, despite its more than a decade-long existence, it hasn’t changed that much.

That is because Bitcoin is truly decentralized, and the community of the network prioritizes the security and predictability of the blockchain above everything else.

Still, from time to time, there are upgrades in how Bitcoin works – sometimes just a small tweak, other times a change as big as Taproot, which took three years in the making and enabled developers to integrate new features to improve the privacy, scalability and security of the blockchain.

And behind every implementation of an upgrade, there is a successful “BIP.”

Bitcoin Improvement Proposal (BIP) is a standardized way to pitch any change to how the Bitcoin blockchain works.

Given that the blockchain is software, think about BIPs as software updates. Their goal is to improve the Bitcoin blockchain, and they must include all the technical details of the change in the blockchain’s code to implement it.

Because Bitcoin doesn’t have centralized leadership, BIPs make it possible for the community to communicate ideas, draft and propose technical changes and eventually vote on accepting or opposing the proposal.

The proposals and discussions are available or anyone to see on GitHub, which is a popular open-source platform among software developers.

Theoretically, anyone can suggest an upgrade and flesh it out as a BIP, because Bitcoin is an open-source, decentralized network.

That said, it’s highly recommended to throw an idea into community forums and email lists to discuss whether the proposal has enough backing among those who participate in the Bitcoin network.

First, the idea needs a BIP champion who will be the author of the proposal. Champions convert the idea into detailed technical documentation according to the BIP standards.

Then, the BIP champion submits the proposal to the BIP editor, who acts as an auditor of the proposal and is responsible for its administration.

The editor’s responsibilities include editing for language and format according to the standards, checking the technical feasibility of the proposal and ensuring it is well prepared to proceed for a vote. The editor can request revisions from the author or even reject it. If the editor says the proposal is ready to proceed, it gets an official number (for example, BIP 119) and the champion presents the BIP to the community.

The BIP has to go through different stages before it can be implemented.

Implementation consists of two steps. First, the upgrade has to be merged into the blockchain’s software code (Bitcoin Core), then it has to be activated. The Taproot upgrade, for example, was merged in October 2020 and activated in November 2021. (Note: Not all BIPs that get merged into the code will ultimately be accepted and activated.)

Proposals can take years until they get implemented, as the community discusses the idea, makes changes and finally reaches a consensus. To minimize controversy and long, drawn-out discussions, a BIP should be focused on one single, key change.

Since Bitcoin doesn’t have central authority, nodes – those who run the Bitcoin blockchain and make it secure – have to agree on the rules and reach consensus on how to run the network. The nodes decide if they activate the proposals by agreeing to run the version of Bitcoin’s code that includes any new changes.

A soft fork introduces a change in the blockchain that is compatible with the older version, making it possible for nodes to run the “old version of the software” without any interruptions. A BIP that proposes implementation with a soft fork requires a “clear miner majority,” meaning that over 90% of nodes have to approve to upgrade. These are called “Consensus BIPs.”

Hard fork BIPs – a radical upgrade that basically creates a new blockchain, rendering the old one invalid – can hardly ever get universal approval from the community because they would require adoption from everyone who participates in the Bitcoin economy, including nodes, exchanges, wallet providers and so on.

Not all BIPs propose changes in the code directly. Standard BIPs establish a new standard to services that use the Bitcoin software such as exchanges. They might require universal approval to maintain interoperability between those that use the blockchain.

Some proposals called Process BIPs introduce new processes and decision-making in the network – they propose rules on how to make rules.

The very first proposal, the BIP 001, was filed by Indian-British programmer Amir Taaki in September 2011, and it described what a Bitcoin Improvement Proposal is. The BIP-002 then revised the guidelines for BIPs and replaced BIP-001. Both are examples of Process BIPs.

These are two Process BIPs that introduced a standard framework on how to activate soft fork upgrades to the Bitcoin blockchain.

This was a Standard BIP that established the standardized format for SegWit addresses in the broader SegWit (Segmented Witness) upgrade that consisted of various BIPs and modified how Bitcoin stores data.

Taproot, the largest upgrade recently in the Bitcoin blockchain, was actually a melting pot of three BIPs (BIP 340, BIP 341 and BIP 342). It stemmed from a proposal by software developer Greg Maxwell in January 2018. After that, three BIPs codified the upgrade championed by Bitcoin developers Pieter Wuille, Tim Ruffing, A.J. Townes and Jonas Nick.

The long-anticipated upgrade went live in November 2021 – almost four years after the initial proposal – and gave Bitcoin developers an expanded toolbox to work with to build on the blockchain.