Bitcoin Fork, Segwit, and Segwit 2x

    News and Updates

    If you have been even passively following cryptocurrency headlines in recent months, you are likely at least a little bit aware of the civil war that has been brewing. The reason for this is due to the need for evolution Bitcoin is experiencing.

    With transaction times and fees at all-time highs, the need for change has been heeded and entertained, however few can agree on what the appropriate plan of action is.

    The Brewing Problem

    As you may or may not have known, Bitcoin has grown in popularity significantly since its inception. Though it may not quite yet be a true household name, it has reached hundreds of millions of people, and reaches new folks every day. This popularity, though great for the Bitcoin and cryptocurrency “brands,” has not been so good to the cryptocurrency itself.

    Bitcoin’s structure, and the code behind it, was built in a way that made the cryptocurrency network reliable and trustworthy. A key feature in upholding those two expectations is the blockchain, whereby every transaction is executed, catalogued, and stored. Unfortunately, there is such a vast quantity of people executing transactions at every given moment that the limited computing power of the Bitcoin network has made processing times longer and fees steeper. This situation, being the perfect example of the ripple effect in action, has caused fewer retailers to be interested in accepting Bitcoin as a form of payment. After all, if it is going to take Wal-Mart 2 days to receive the BTC you paid for your groceries, they are probably not going to see the addition of Bitcoin as an accepted payment method as something that entices them. And if retailers are not going to accept Bitcoin as a form of payment, is BTC a currency at all, or just another investment vehicle like stocks?

    So, in a very literal sense, it is Bitcoin’s popularity that was (and in many ways still is) on the verge of its undoing. Thankfully, the Bitcoin community derived some solutions to the laundry list of interconnected problems. After much debate, it came down to two proposed changes, both of which had their own fair share of supporters. These two very different courses of action were going to shape the future of Bitcoin, but has threatened to kill the cryptocurrency during the process.

    Solution Number 1

    When you think of the Bitcoin network, you must really think of it as being two-parted. On one side, you have the folks who are tasked with maintaining the open-source code that allows Bitcoin to continue running. On the other side, there are the miners. The miners are the gas pedal of the operation, processing transactions, thus creating blocks and adding them to the blockchain. The beauty of Bitcoin is that one group cannot exist without the other. In the case of the Bitcoin fork, this two-sided affair might have saved the cryptocurrency.

    The first solution, which is termed SegWit, is a solution that will simply alter the way in which data on the Bitcoin blockchain is processed and stored. To fully explain the first solution, it is necessary that we first explain what the blockchain actually is and consists of.

    When we talk about a block, we are really talking about the 1MB of data that itself is comprised of Bitcoin transactions. In essence, a block is a blank sheet of paper and the thousands of Bitcoin transactions that take place daily populate the blank sheet. Once the sheet is full of transactions, it is a complete block and can be added to the chain.

    In terms of what, exactly, a Bitcoin transaction is, it is more than just sender, recipient, transaction amount, and fee. While all of this information is stored on the blockchain, so are some other, non critical bits of info. Some of these added bits take up a lot of computing power, thus adding to the time it takes for a Bitcoin transaction to be processed.

    One of the biggest data suckers from a single Bitcoin transaction is what is called the witness. The witness data is the part of the transaction process that verifies that the sender of bitcoins does, indeed, have enough bitcoins to honor the transaction. This small, quick task takes up a lot of space and really slows the whole transaction process.

    If SegWit is implemented on August 1st, it will take this witness data, segregate it, and store it elsewhere, thus relieving the blockchain of unnecessarily used space and simultaneously speeding up transaction times. The name SegWit was derived because this type of technology will segregate the witness from the transaction.

    If this solution is good for everyday users, it is also good for miners. The reason this is so is because even if one does not adopt SegWit right away, they can still benefit from it. Though the way in which the data is extracted and stored elsewhere is a bit different, the end result is still a faster transaction. For people following the situation, the implementation of SegWit is referred to as the Soft Fork.

    Solution Number 2

    The other potential solution to the Bitcoin problem is SegWit 2x. It received this name because this solution would also see witness data segregated from the block, but would additionally increase the size of a block to 2MB. In theory, this sounds like a great solution because SegWit is allowing transactions to process faster, while the 2x is allowing a larger number of transactions to be stored in a single block. This seems like the perfect solution.

    Unfortunately, however, SegWit 2x, in order to be implemented, would require that all miners buy new, upgraded software and hardware. The harsh reality of the matter is that there will inevitably be a lot of miners who can either no longer afford to compete with larger operations, or simply do not want to go through the trouble of essentially starting their mining operation from scratch. One way or another, the total quantity of miners will decrease, or so it is believed. If this happens, Bitcoin—a cryptocurrency that is to be wholly decentralized—will see governing power left in the hands of the miners that remain. Because this sharp drop-off and drastic change, this solution is referred to as the Hard Fork.

    Some miners have been pushing for this solution because not only will it mean that there is less competition, they will also be able to process larger blocks, thus receiving a bigger paycheck. For the miners, it truly is a win-win.

    What Happens on August 1st?

    What will happen on August first is difficult to say. The reason this has been called the Bitcoin Civil War is because no one could come to agreement as to what the best solution was. While there was general agreement that something had to be done, no one could agree on an appropriate course of action.

    Perhaps miraculously, however, the last few weeks have seen a lot of changing opinions. Now, just days before the end of July, it is looking more and more like SegWit will be adopted in favor of SegWit 2x. The main driving force behind this is that it keeps Bitcoin on a level playing field, so to speak.

    No miners will be ousted from the network, users do not have to worry about a potential drastic swing in value, and the cryptocurrency will have a stronger chance of, once and for all, making a full breakthrough into the mainstream. The change in opinion has also been reflected in Bitcoin’s value, which has become much less volatile in recent days.

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