Friday, December 9, 2022

SegWit2x and the Looming Hard Fork: Why Does It Matter?

SegWit2x and the Looming Hard Fork: Why Does It Matter?

Bitcoin’s most touchy subject, the block size limit debate, will soon be coming to a head in November. This is when the proposed scaling solution known as SegWit2x (S2X) is to begin its activation process — risking another contentious hard fork that could destabilize the entire crypto space.

Also read: Feds Tracked BTC Addresses and LocalBitcoins to Bust Dark Market ‘Kingpin’

Join the Bitsonline Telegram channel to get the latest Bitcoin, cryptocurrency, and tech news updates:

What Is SegWit2X?

So, what is this so-called SegWit2x solution that everyone keeps talking about, anyway?

Well, to start off, it’s simply a solution to a scaling problem that has plagued the Bitcoin network for several years now. How do you onboard millions of potential new users worldwide if the system can only handle a few transactions per second?

S2X was first proposed in May 2017, and was quickly accepted by several major players in the Bitcoin industry at large, including prominent startups and mining pools.

The resulting plan, which was ultimately signed by 50 companies and supposedly had the support of 83 percent of the network’s miners, has been dubbed the “New York Agreement.”

The plan is being rolled out in two parts:

First, there was a modification to Bitcoin code, called Segregated Witness (SegWit) that changed the way transaction data is stored on the blockchain. That update activated via a soft fork in August 2017, and is now the official Bitcoin transaction format.

The SegWit update package also fixed a long-recognized “problem” called transaction malleability — which allowed certain elements of the transaction data to be altered after sending.

Second, there’s a proposed increase in the maximum block size from 1MB to 2MB — this part is the “2X” part of the plan and is set to trigger three months after the activation of SegWit. The first part of the plan locked-in on 1st August, with the second part slated to trigger on 18 November.

Notably, developers at Bitcoin Core (the dominant Bitcoin node and mining software) and Blockstream, plus their fans in the Bitcoin community, never supported the New York Agreement. While they were strongly in favor of SegWit itself, they oppose a contentious hard fork to increase the block size.

NY Agreement Sets the Stage for a Second Hard Fork

The first phase of the New York Agreement was implemented without much of a problem, despite a hard fork that split that currency in two.

What emerged out of this hard fork was a competing version of Bitcoin, now known as Bitcoin Cash (BCC).

For the most part, Bitcoin Cash’s presence didn’t really affect Bitcoin’s price in any significant way — even when its own price nearly eclipsed $1,000 USD.

The split was a long time coming, essentially the product of big block supporters who became disenfranchised with the traditional Bitcoin chain — deciding to split away from it and create their own currency.

No2X SegWit2x S2XAlso, the emergence of Bitcoin Cash showed that big blockers were either doubtful that the block size increase was actually going to be carried out, or that the increase simply didn’t go far enough.

Because whereas SegWit2x planned to increase the block size by two times its original limit, from 1MB to 2MB, Bitcoin Cash was given a default block size limit of 8MB that could be adjusted over time to become even larger.

However, with the 2nd part of the plan nearing, people have become concerned about a hard fork that could again split the Bitcoin blockchain and create yet another version of Bitcoin.

The proposed increase in the block size limit has become highly controversial. Most of Bitcoin’s development team and, if certain polls are to be trusted, the majority of users have come out against it.

Thus, it seems as time goes and and the target date draws closer the more likely another chain split is becoming.

Why It’s So Important

Unlike the last split, this one seems to be surrounded in a lot more uncertainty as to what kind of effect it will eventually have on the price of bitcoin — or even cryptocurrency in general.

For one, the second part of the New York Agreement is a lot more contentious than the SegWit portion, mainly due to the hard fork requirement. Indeed, the controversy recently boiled over as a #NO2X anti-big block protest was initiated on Twitter., the original Bitcoin information homepage, has “denounced” companies that support SegWit2x and listed them as a risk.

Furthermore, if the split occurs it could cause Bitcoin’s price to crash due to uncertainty in the market. This is because a split, in this context, could spell long-term disaster if neither of the resulting coins are scalable for mainstream use.

What do you think of the the “SegWit2X” solution? Do you think the second part of the solution will be activated, or do you think Bitcoin is headed towards yet another hard fork In November?

Images via FX Empire, MadBitcoins

Bitsonline Email Newsletter