SegWit2x: A Brief Outline and What It Means for CEX.IO Customers

Following the signing of the New York Agreement this May and successful activation of SegWit, a lot of rumours have circulated within the Bitcoin and wider crypto community about the potential of a second hard fork coming this November. According to those in favour of increasing the block-size, the contract signed in New York in May should guarantee the second fork’s occurrence. However, as there remains considerable disconnect within the space and many signers seem to be reneging their previous commitment to upgrade, it is unclear whether this chain split will take place at all.

What is SegWit2x?

All updates to the network are achieved via a “fork”. These can be either soft, or hard. A soft fork can occur without causing a split in the network. A hard fork, however, results in two independent chains. If there is consensus for the update, the hard fork may be relatively painless. All miners simultaneously switch to the new chain with the upgrade, and the original one dies. However, there is anything but consensus between the miners and users of the network at present. As we saw with Bitcoin Cash earlier this summer, if some miners choose the new fork and some the old, then both chains continue. This results in holders of the cryptocurrency receiving the same number of new coins as they originally held at the time of the split. In the case of B-Cash, the market assigned value to these coins and investors could decide to trade or hold their new tokens, as well as the ones of the original chain.

SegWit2x is a proposal which aims to increase the utility of the Bitcoin blockchain by way of two independent hard forks. For those less tech-savvy, it’s an update to increase the number of transactions that can occur on the network. It’s widely acknowledged that greater mainstream adoption hinges on the Bitcoin network’s ability to process more data, thus being able to serve more people at the same time. There have been various proposals over the years about how best to do this and SegWit2x is a compromise between two of the opposing schools of thought.

Some believe that the best way to increase the number of transactions per second is to raise the size of each block in the chain. Meanwhile, others think that the correct way to scale would be to use second layer protocols. We’ll not go into the specifics of how SegWit increases the transaction output of the Bitcoin network but it basically allows some of the necessary data for transactions to be stored off the blockchain itself. This frees up space within the blocks without sacrificing security.

New York: A Lasting Peace?

Concerned parties met in New York in May 2017 to debate the scaling issue that has raged online for years now. They appeared to arrive at a compromise which was known as SegWit2x — a portmanteau of both sides’ proposals. The agreement made has henceforth been known as the New York Agreement. The decision was made to activate SegWit initially and later increase the block size. However, just before the SegWit deadline, the network was forked (split) by surprise anyway. The resulting chain, Bitcoin Cash, increased the capacity of the blocks from the original 1MB size. This event has caused many to question the need for increasing the size of the original BTC chain’s block. The argument is that now we have an instance of Bitcoin with second layer protocols (SegWit) and one with larger blocks (B-Cash). Those opposing the November fork claim that the market can decide, which scaling system it prefers and there is no need to risk potential upheaval, or to burden exchanges, wallet providers, and users with another split in the blockchain. This has subsequently led to some of the signers of the New York Agreement refuting it, and a large portion of the community rejecting it entirely. At present it’s unclear whether the fork will occur or not. This had resulted in a lot of uncertainty in the market.

How Does CEX.IO Plan to Respond?

CEX.IO has already made the call to update the customers and partners about how they will respond to the events that may or may not be coming this November. The exchange welcomes developments that help the cryptocurrency industry evolve. Bitcoin needs to scale and CEX.IO appreciates that a more capable network will result in an improved experience for the average user. Despite the lack of consensus within the community, CEX.IO is eager to support any update which provides improved functionality and usability for the customers.

However, any improvement in experience should not come at the expense of the users’ security. Under no circumstances should they be at risk of losing anything. CEX.IO is committed to this principle, irrespective of how the market will evolve in the future. As such, the exchange will continue to observe the developments within the industry and consider the options as they change with shifts within the community’s sentiment. Customers should be reassured that CEX.IO will act in their interests and constantly work towards improving safety and security for them. For now, they are engaged with analysing the technical implications of every expected outcome of a November hard fork. This naturally includes the event of a full chain split.

Yet despite the air of uncertainty surrounding the entire industry, CEX.IO assures that whatever the outcome is, the customers will indeed receive new coins should the SegWit2x fork occur. There will be no risk with keeping BTC on the platform, but the details about pay-outs are currently being worked on, and need finalising.