Segwit 2X Hard Fork: a serious threat? =

Monday, November 13 is the day. Another Bitcoin hard fork. We have already experienced a number of them, but the upcoming Segwit2x fork is a completely new situation. Where the previous hard forks often meant free money, this fork seems to be an all-or-nothing situation. This Segwit 2x Hard Fork is seen as an attack on the Bitcoin network. Why is this hard fork happening? And why can this fork be a serious threat to the current Bitcoin?

What is a hard fork?

Let’s start all over again at the beginning: what is a hard fork? If you are already familiar with this, it is always good to refresh your memory. Or you can read more here.

Soft Fork

To properly explain a hard fork, you first need to understand what a soft fork is. Several ‘rules’ are implemented in Bitcoin’s code. For example, when Bitcoin was a small coin, one of these rules was that there was no limit on the size of a block in Bitcoin’s blockchain. With a soft fork, these rules are made ‘stricter’. In 2011, for example, there was such a soft fork: the developers decided to impose a limit of 1MB. This change was within the current rules of Bitcoin and therefore no rigorous adjustments had to be made: no conflicts arose for Bitcoin users, such as nodes, miners, wallets, etc.

Hard Fork

With a hard fork, the rules are not made stricter, but rather relaxed. If developers want to increase the limit of 1MB, this is no longer possible with a soft fork. A relaxation of the rules means that all software of nodes, miners, and wallets must be updated, otherwise they will not be able to process Bitcoin’s new, more flexible code. This creates two blockchains: the old one with the old stricter rules and the new one with the new more flexible rules. It is up to the community which blockchain they want to support. In the case of Bitcoin Unlimited, Bitcoin Cash and Bitcoin Gold, it was clear quite quickly that the community remained loyal to classic Bitcoin.

 

 

What is the Segwit 2X Hard Fork?

The Segwit 2x hard fork represents a relaxation of the rules of Bitcoin’s current blockchain. The main reason for this is the scaling problem that has plagued Bitcoin for years. During the discussion to solve these problems, two solutions kept coming up that the community couldn’t agree on: increasing the block size from 1MB to 2MB or implementing Segwit. After years of discussions between the two groups, it was decided during the New York Agreement (NYA) to go for a middle ground/combination of the two and to implement both solutions: Segwit 2x.

Why is the Segwit 2x Hard fork different from other forks?

This can actually be summarized very briefly: where the previous hard forks were intended to live alongside Bitcoin, the Segwit 2x hard fork is intended to take over the entire Bitcoin network and take over the place of Bitcoin. The prevailing Bitcoin we know now is the original one from 2009 that has been further shaped by all kinds of soft forks (except for a small hard fork in the real early days that was necessary to stop hackers). This is the first time there is a real chance that the almighty Bitcoin could continue as a new version.

Who is going to win?

This is of course the most important question and probably the reason you are reading this article. Whether the old trusted Bitcoin or the new upgraded Bitcoin will win this, nobody knows yet. We can, however, take a closer look at the different groups that support the different Bitcoins and you can make your own prediction based on that. For simplicity, let’s call the current form of Bitcoin BT1 and the new form (which has 2x implemented) BT2.

The current situation of Bitcoin

In fact, the beginning of this fork originated during the NYA on May 23, 2017. Almost all major companies related to Bitcoin were present at this meeting: 95% of the miners and almost all major exchanges. They all came to a compromise to implement both Segwit and a larger block size of 2MB: Segwit 2X. They came to the conclusion to realize Segwit first and then, a few months later (November 2017), the 2x part.

The Core Developers

However, there was a small problem: zero point zero of the Bitcoin programmers were present at this meeting. Core (that’s what Bitcoin’s main group of programmers is called, the group that has been making what Bitcoin is today since 2009) had been programming Segwit for years, so they had no problem implementing it. However, they had nothing to do with the 2x part. They hadn’t programmed a line of code for it, much less made the deal to make it part of Bitcoin. Naturally, this led to conflicts.

The core developers believe that 2x has been pushed through way too quickly and that it is too unsafe to simply apply it to Bitcoin. So far, each update has been rigorously tested for security and conflict (which makes perfect sense if it has a significant impact on an economy currently worth over $100 billion), but this is not the case with 2x . In addition, the Segwit 2x hard fork does not use so-called “replay protection” (which was very well arranged with Bitcoin Cash, for example). With a hard fork, when you make a transaction on the old blockchain, it is automatically done on the new blockchain. Replay protection ensures that this cannot happen again. With the Segwit 2x hard fork, it is therefore quite possible that if you transfer BT1 to Jantje just after the fork, there is a good chance that Jantje will also receive the same amount of BT2 from you, while you did not ask for it at all.

Why 2x?

Yet 2x is currently supported by a whopping 85% of miners and the miners ultimately determine which direction Bitcoin goes. They approve the transactions, they look for new Bitcoins and they ensure that security can be guaranteed. The blockchain that gets the most support from miners will therefore be the blockchain that can enjoy all the benefits that blockchain offers. In addition, it is important to realize that the majority of miners are located in China and the rest of Asia. Here they are a lot more concerned about losing face than we are used to in the West. It will therefore be an extra big step for them not to comply with the agreements of the NYA.

What can happen?

Anyone who has paid attention has noticed that something did not seem quite right in the above story. In the beginning I was talking about 95% of the miners agreeing with the Segwit 2x Hard Fork, while above I am talking about 85%. The reason for this is that in the meantime one of the major mining pools has withdrawn from the NYA and says it now supports BT1. This may be a sign that 2x may be too much of a risk for the mining pools as well.

Money ultimately determines the winner

In the end, it’s all about one thing: money. SegWit 2x has been agreed, because it ultimately brings in more money for the large mining pools. The large mining pools seem to be setting the course at the moment, so there is a plausible chance that BT1 will be taken over by BT2.

But this is too fast a conclusion! On Bitfinex you can already trade in futures of both BT1 and BT2 (kind of future version of the two Bitcoins that can eventually be exchanged for the real version once they have been forked). BT2 is currently only 17% of the value of BT1. This means that if 85% of the miners start mining BT2, this will yield much less than if a part starts mining BT1. Game theory shows that they will be more inclined to go for the Bitcoin version that pays them the most. If the miners indeed opt for the money, a large part will mine BT1 and a part BT2. It remains to be seen which will ultimately be mined the most and will therefore be the ‘winner’.

So it’s still waiting in full suspense for the next few days. The price of the futures can still change considerably and it is also possible that several large mining pools will change their mind and indicate that they are moving away from the NYA. Via this link you can keep track of the percentage of miners currently supporting 2x. So it is all still very unclear and no sensible word can be said about the future. However, one thing is certain: these are exciting and beautiful times in the world of crypto and it is a beautiful story for our grandchildren.

Overview pros and cons 2x

Below is a small overview of the pros and cons of 2x:

Proponents of 2x are for:

  • Lower transaction costs and faster confirmations
  • Finally a compromise for years of discussion
  • Anyone who makes an appointment must keep it
  • Bitcoin Core should no longer be in charge
  • Miners must be in charge

Opponents of 2x are for:

  • Bitcoin security is the #1 priority
  • It’s not nice to make deals behind someone else’s back
  • Bitcoin Core needs to call the shots
  • Miners should not be in charge
  • Controversial hard forks should be avoided
  • Hard Forks should never be rushed
  • Replay Protection must be used during a Hard Fork

But what can we do best?

Quite a story, but now it is still not clear what is the best thing to do with your Bitcoin. As mentioned, there are quite a few security issues with BT2. For example, it is very important that you do not make Bitcoin transactions right after the Segwit 2x Hard Fork, because you can just perform a double transaction on both blockchains.

In addition, it is always wise to keep your Bitcoin in your own wallet. It is not yet clear what the exchanges support and certainly not which version of Bitcoin will be named Bitcoin and which will be named the other version.

Another option could be to invest your Bitcoin in altcoins. There will probably be more people with this idea, so that could cause altcoins to experience significant increases just before the split (pure speculation, absolutely not sure if this will actually happen). It could explain why Bitcoin Cash has risen so fast in recent days.

If you’re not in it for the money, but for the future of blockchain, you might want to take a closer look at the pros and cons of 2x. Based on this, you can make a decision which blockchain you want to support.

Wondering how to buy cryptocurrencies? Here are the steps for you:

  1. Create an account on Binance
    2. Press Funds -> Deposits Withdrawls3 at the top right. Press Deposit at BTC4. Generate your own address and copy it5. Go to Bitonic
    6. Buy the amount of BTC you want and paste the copied address7. Wait for the order to arrive8. On Binance, go to Exchange and click on the coin/token you want to buy9. Buy the desired amount of this coin/token

Here you will find more information about how to buy crypto and here you will find the manual of the Binance Exchange

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