Knut Svanholm

@knut.svanholm

Casual Bitcoin users! You need to know about Nov 16th too!

Remember, remember the 5th of November… no, sorry. The 16th of November that is. That’s when the so called SegWit2x fork is supposedly going to split the Bitcoin blockchain just like a couple of months ago when Bitcoin cash was forced upon us users, like a weird crossbreed of a Christmas present and a train robbery. But, as new born socialist states always say — this time it’s different. And it is. Not in very many good ways though. First of all, let’s begin with how we ended up here in the first place. This is a short summary of recent events.

The blocks in the Bitcoin blockchain are mostly full nowadays (and they have been for some time) which means that the average fee a user needs to pay in order for a transaction to be included in the next block is relatively high, especially if it’s measured in US dollars since the value of the dollar almost always shrinks in comparison to Bitcoin. Therefore, most participants argue, the network will need to scale in order for Bitcoin to keep its initial promise of frictionless transactions. There are different views on how to do this and the first step of the solution proposed by a majority of Bitcoin’s core developers, an improvement proposal called “Segregated Witness”, was implemented on the network a couple of months ago. This happened in an unorthodox way and because of that the network forked in August and Bitcoin cash was created. In addition to that we’re now facing another hard fork.

The Bitcoin protocol is an open source project. This means that anyone with sufficiently sophisticated programming skills can contribute to the network by suggesting a Bitcoin Improvement Proposal, more commonly known as a BIP. Generally speaking, at least 95% of the network needs to agree for such a proposal to be implemented. “Segregated Witness” (short SegWit) was one such proposal. For a long time it seemed unlikely that it would be implemented at all but then a small group of key players in the industry decided to meet in New York and sign an agreement that the bar for SegWit activation would be lowered and that a block size doubling would follow in mid November. Consensus for SegWit was reached and SegWit was activated in August. Everyone was happy, the Bitcoin cash people forked off and the value of both networks boomed despite many doomsday predictions.

This time it’s different.

Even though the people who signed the New York agreement agreed on what path to take going forward there’s no guarantee that the Bitcoin users are of the same opinion. The core developers are of a different opinion. Most nodes are of a different opinion. Decentralization of power is arguably the defining feature of Bitcoin and CEO’s in rooms signing agreements is probably not what Satoshi envisioned when he decided to unleash the Bitcoin piranha school upon the loan sharks of Wall Street. Even if everyone on the network thought it was a good idea to increase the block size this would be the wrong way to decide on whether to do it or not.

Remember what makes Bitcoin valuable in the first place. Immutability. Should a fork or even an altcoin become too successful the whole point of Bitcoin would be lost. The 21 million coin cap is there for a reason. Every serious player in this space has an economic incentive not to tamper with this. Everyone who acts in another way is either ignorant or has another motive.

So, what’s my advice on the upcoming fork? First of all — control your private keys. If you don’t know what I’m talking about you’re ignorant. Yes, you are, go and do your homework. Second of all — be patient. This fork might not have any replay protection so anything you decide to do on one chain might be replayed on the other chain without your consent. This probably won’t matter in the long run since one chain will be dominant. Don’t do anything for a while after the fork. All the wallet providers, all the exchanges, all the miners and anyone else dependent on Bitcoin’s success will very quickly adapt and follow the most popular chain as they all have an economic incentives to do so. Right now it seems likely that SegWit2x will fail. It might even fail before it’s supposed to happen and it might not even happen at all. If it does fail, fees will stay high in the short run but the integrity of Bitcoin will remain ironclad. If it doesn’t fail, we might have gotten ourselves a new governance model that might stay really popular for a long time but we might also have destroyed the dream of sound money and compromised the whole crypto ecosystem.

Doomsday scenarios aside, read up on your wallet’s policies and read up on the underlying technology. Oh, and throw some game theory in there while you’re at it. The likeliest scenario is still a better, more secure and more valuable coin after the fork.

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