What are Bitcoin improvement proposals (BIPs), and how do they work?

Bitcoin structure is made of software, hardware and energy resources, and governance is managed entirely through its code. By running a node, everybody agrees on the code rules.

Being an open-source, decentralized cryptocurrency based on a proof-of-work (PoW) consensus system, Bitcoin has no central authority to decide future core protocol changes. Therefore, its development relies on decisions taken by the community through improvement proposals called Bitcoin improvements proposals (BIPs).

From the initial proposal to the final stage, Bitcoin’s development process is deliberately lengthy and purposeful to preserve the network's security and ensure that trust in the system is maintained at all times.

However, not every change to Bitcoin (BTC) requires a BIP, which is used mainly to improve the protocol. For instance, in the case of the user interface, there’s no need to go through the long process of a BIP.

BIPs will be implemented in anticipation of significant protocol upgrades or large-scale amendments to the system, such as new transaction types like SegWit or transaction properties like replace-by-fee (RBF).

Being a blockchain, Bitcoin necessitates regular upgrades, from bug fixes to changes to the algorithms or simplification of its code to provide more efficiency.

A BIP is the standard method employed to promote ideas, changes and improvements to the Bitcoin protocol, a formal document to introduce new features or processes to the network. BIPs can change anything from consensus rules to community standards or development processes within the protocol. A BIP aims to provide upgrade and development coordination within the Bitcoin community, which has no leaders.

The first BIP (BIP 0001) was submitted by British-Iranian programmer Amir Taaki in 2011 — two years after Bitcoin was created– to describe what a BIP is. However, changes to the protocol are not a prerogative of developers and programmers only.

As an open network, Bitcoin allows everyone who desires and has the skills to participate and submit a BIP. Let’s take a look at the Bitcoin improvement proposal process.

BIPs result from informal proposals and ideas usually generated in meetups, forum chats or social media engagement, especially on CryptoTwitter.

Pre-emptying an idea in forums and chats before turning it into a BIP will save time for both the ideator and the community if a proposal has already been submitted or the idea is not in line with the general development standards.

Every BIP should be submitted with the aim of being accepted, and since the process is lengthy and requires time and resources, BIP authors must be highly cautious when submitting a proposal. By asking the community first, the chances of a proposal being rejected are strongly reduced.

Anyone from the community can become a BIP champion, which means an author who writes the proposal in BIP style and format and promotes the idea, and discusses it in the relevant forums to get the relevant consensus.

A BIP should concern a significant change or addition to the Bitcoin protocol. Little changes, bugs or patches do not need to be turned into BIPs; they can simply follow the standard workflow required by each project development.

As an open and decentralized network, Bitcoin is not owned by anyone, just like the internet or other technologies are not owned by anyone.

The Bitcoin community is formed of supporters of the technology regardless of their background. Developers, miners and especially regular users control Bitcoin, not a specific central authority. Indeed, developers and miners drive and improve the network; however, users choose which software version they want to utilize.

Hence, anyone can propose a change to Bitcoin as long as they have the skills and knowledge to suggest something relevant to add to the Bitcoin protocol.

Before becoming a formal BIP, the proposal is communicated via email or other communication channels like Slack, where initial feedback is provided by the community.

Once the proposal receives significant support, the author can progress it to the next stage and turn it into a BIP.  The proposal should be written in BIP style and format and provide a concise technical specification and rationale for the feature. The BIP champion is responsible for promoting the idea and building consensus around it by replying to feedback and questions.

Before becoming a draft, BIPs need to get the go-ahead from the editor. At that point, it is submitted to the BIP list as a draft, and an editor assigns it a BIP number and publishes it to the Bitcoin Core GitHub repository of BIPs.

The BIP is formally generated and ready for review and feedback before advancing to the testing phase. BIPs are also assigned a status that everyone can check to assess progress.

Typically, anyone can activate the BIP rejected status if no progress is made within three years of the proposal.

Gathering significant consensus within the community is the first step of the process. Sometimes, even the most valuable proposals can take years before they are approved or rejected because the community can’t find an agreement.

Once a BIP is submitted as a draft to the BIP GitHub, the proposal gets reviewed and worked on transparently so that everyone can view its progress and consequent testing outcomes. As Bitcoin blockchain is based on code, protocol changes will have to be reflected in the code, and miners will have to add a reference to their hashed block to signal that they accept or reject their implementation.

Because of the severe implications some changes might inflict on miners, a modification in the code requires acceptance by a vast majority of around 95% unless a reasonable motive is given for a lower threshold. Ninety-five percent support will have to be signaled from the last 2,016 miners (approximately 14 days worth of mining with 10-minute blocks).

As an example, we’ll use the recent implementation of the Taproot soft-fork, labeled as BIP 341. In April 2021, via the means of a “speedy trial code” – meant to give a quick resolution to the upgrade – the Taproot activation was merged into Bitcoin Core.

In the following couple of weeks, at least 90% of the blocks mined (1,815 out of 2,016 blocks mined) included an encoded reference indicating that the miners who mined those blocks favored the upgrade. This paved the way for the astonishing consensus achieved in the following months, leading to the final approval in November 2021.

The final and official approval of a BIP happens automatically when users (node operators) choose which Bitcoin Core version to download and run a node that reflects that change. Then, all upgraded nodes can recognize and accept transactions made using that upgraded protocol.

In summary, these are the main steps of the approval process:

• Anyone can submit a BIP to change Bitcoin core;

• An editor must pass the BIP;

• The BIP must be approved by ∼95% of miners; and

• The community must upgrade to the new software version.

Here’s a graphic of the BIP approval process:

There are three main kinds of BIPs: standard, informational and consensus BIPs.

Standard BIPs

They identify standards used by Bitcoin software like wallets or exchanges and aim at changing the protocol; therefore, they require consensus to be approved. For example, they might submit encoding methods for securing Bitcoin or are recommended in the case of interoperability, which means that wallets should be able to recognize and function with any Bitcoin address to be useful.

Informational BIPs

They have an informative purpose only. They offer general guidelines to the community but do not introduce a new feature and are, therefore, not required to gain consensus within the community.

Consensus BIPs

Also called process BIPs, consensus BIPs seek to change a process, and, similar to standard BIPs, require universal consensus despite containing changes outside of the Bitcoin protocol. Consensus changes require explicit activation on the Bitcoin network.

BIPs are an essential component of Bitcoin governance and represent an efficient way to improve and upgrade the top cryptocurrency with no central leader. Ultimately, this is what matters for the technology to be successful.