Bitcoin is rapidly approaching a fork in the road that will determine a great deal about its future. Recently, Cointelegraph published a piece highlighting the so-called forks of “Bitcoin Cash” and “Bitcoin Gold” and explaining that neither were a threat to the network.
The upcoming Core vs. SegWit2x fork is an entirely different animal.
Bitcoin’s scalability debate has been ongoing for over four years, and it reached such a rancorous level that some had taken to calling it an actual civil war. The debate began when many in the Bitcoin community realized that with increasing use of the network, capacity must be increased to prevent transaction backlogs.
Many called for a doubling of the blocksize as a tentative fix until a longer-term solution can be worked out. Bitcoin’s Core development team opposed a blocksize increase, preferring a more long-term technical solution.
Core came up with Segregated Witness (SegWit), which would increase the number of transactions that could be squeezed into a block, and would fix Bitcoin’s malleability bug. Fixing this bug would allow for deployment of the Lightning network, which would allow Bitcoin to scale exponentially.
In February 2016, Representatives of Bitcoin Core met with a consortium of miners in Hong Kong and agreed to a compromise: SegWit would be adopted and the blocksize will be increased to 2 MB. Among the signatories was Adam Back, president of Blockstream, who provides much of the funding for Bitcoin’s development team.
Gregory Maxwell, one of the Core developers and Back’s subordinate, immediately attacked the Hong Kong Consensus:
“It’s just that a couple of well meaning dipshits went to China a few months back to learn and educate about the issues, and managed to let themselves get locked in a room until 3-4 am until they would personally agree to propose some hardfork after SegWit.”
Once the SegWit code was released, about 40 percent of miners began signalling their support, while roughly another 40 percent signalled their support for bigger blocks. There was an impasse, and things remained that way for about a year.
In May 2017, Barry Silbert of the Digital Currency Group met with numerous miners and leaders of Bitcoin businesses, and from this meeting emerged the New York Agreement. The signatories agreed that SegWit would be activated before September this year, and that a 2 MB blocksize increase would occur by means of a hard fork this November. The agreement was signed.
The group of signed companies represents a critical mass of the Bitcoin ecosystem. As of May 25, this group represents:
- 58 companies located in 22 countries
- 83.28 percent of hashing power
- 5.1 bln USD monthly on chain transaction volume
- 20.5 mln Bitcoin wallets
Following that agreement, 95 percent of Bitcoin’s miners began signalling their support of the New York Agreement, also known as “SegWit2x.” Until a few days ago, support for SegWit2x remained at 95%. However, some of the Bitcoin businesses that signed, such as Bitwala, have reneged on their promise. More important, the major Bitcoin miner F2Pool has stopped signalling for SegWit2x, reducing the fork’s mining support to 85%.
Some have suggested that those miners who supported only SegWit might withdraw their support for the blocksize increase portion of the agreement, as F2Pool has now done. This is a strong possibility, particularly with cracks rapidly appearing in the edifice. Only time will tell for sure.
In the meantime, Bitcoin’s Core developers are adamantly opposed to the hard fork and apparently intend to continue supporting the non-2x chain. This creates the probability of a chain split, since not everybody will be upgrading their software to the new 2x code.
What if they go through with it?
It’s by no means certain that miners will continue to support the hard fork. Anything could happen in the next six or so weeks. However, given the uncertainty that the looming hard fork is generating in the market, it seems logical to assume that any miners who didn’t actually intend to go through with the fork would by now have publicly withdrawn their support. So far, that hasn’t happened.
If the SegWit2x hard fork does occur this November, and if 85 percent of the miners begin running the new code, and if Bitcoin Core and their supporters decide not to upgrade to the new code, then a chain split will occur.
This chain split is complicated by the fact that the 2x code will apparently not include replay protection. Replay protection is important, because otherwise coins sent on one chain will be automatically sent on the other chain as well. That would likely be disastrous.
Jeff Garzik, who maintains the SegWit2x code, has declined to include replay protection. He insists that SegWit2x, with its overwhelming miner support, is the “real” Bitcoin, and that his code is merely a much-needed (and already agreed-upon) upgrade. Meanwhile, Bitcoin Core developers refuse to add replay protection to their code, since they see “their” version of Bitcoin as being the real thing, despite a lack of mining support.
If everything continues the way it is today, in November a chain split will occur. The legacy chain will continue to exist, but will only be supported by about 15 percent of Bitcoin’s miners. The upgraded chain will be supported by 85 percent of Bitcoin’s miners. Bitcoin Core’s development team and many Bitcoin users will support the legacy chain.
Bitcoin exchanges are in the difficult position of deciding whether to list both chains, and which one to call “Bitcoin.” Bitfinex, the largest Bitcoin exchange by USD volume, recently announced that the legacy chain will maintain the BTC ticker, although they will also trade the new chain as well.
If there are indeed two Bitcoins, one backed by the developers and the other backed by the miners, mass confusion and chaos are likely to ensue, as would-be investors won’t know which Bitcoin is the “real” Bitcoin. In order to solve this potentially devastating problem, it’s likely that the majority chain will attack and destroy the minority chain.
The way that would work is simple: since 2x will have 85 percent of the miners, a small portion of miners can begin mining the legacy chain. At some point, they will launch a 51 percent attack against the minority chain, causing double-spends, Blockchain reorgs, and generally making the legacy network unusable.
Bitcoin Core has said that in the event of a 51 percent attack, they will change their mining algorithm to prevent further attacks. Thus you have the group who claims to be the “real and original Bitcoin” changing it’s consensus mechanism and launching a very dangerous hard fork of their own.
In the event of a chain split where 85 percent of the miners support the 2x chain, and Bitcoin Core continues to run the old legacy chain, Core’s chain will almost certainly die.
Many will argue that what matters most is the exchanges. If the exchanges refuse to trade the Bitcoin 2x token, it will die off. All they have to do is support the legacy chain, Bitcoin Core’s version of reality, and 2x miners won’t be able to get any money for the coins they mine, and they’ll switch back to the legacy chain.
The problem is that exchanges will almost certainly not do that. No exchange in their right mind is going to exclusively support a token that only 15 percent of the miners are backing. The Blockchain simply won’t be secure enough. When Bitcoin Cash was first released, exchanges took several days before fully supporting it, because the low number of miners meant that an attack on the network would have been trivial.
What is a Blockchain reorg?
A Blockchain reorg is probably the most dangerous outcome of a 51 percent attack. Suppose an attacker has twice the mining power as the legitimate network. The legitimate miners are doing their thing, publishing their blocks as they are created, and all is well. In the meantime, the attacker is secretly mining their own blocks, but not publishing them. Suddenly the attacker releases 15 new blocks in the same period of time as the legitimate miners have produced only 10.
Since the longest chain is always seen as the legitimate one, the attacker’s 15 blocks will replace the legitimate miners’ 10 blocks, and the attacker’s version of reality is accepted by the network.
What if an exchange accepted a 1000 BTC deposit during this time. The trader who made the deposit sold the Bitcoins to somebody else and withdrew cash. Then suppose a Blockchain reorg took place which orphaned the block in which the deposit was made. Now the original owner still has his 1000 BTC and also has its dollar value as well. The exchange has neither the dollars nor the Bitcoins, because the network says the deposit never happened.
Wait until the dust settles
Now is not the time to panic. It’s entirely possible that some of the miners supporting the 2x hard fork may back out, and that the fork might not happen. It’s also possible that Core may back down at the last minute, and agree to accept the 2x upgrade without causing a chain split. Even if neither of these happens, it’s possible that the majority chain will have killed off the minority chain within a few days of the fork.
Ordinary users will be best served if they put their Bitcoins into cold storage and wait until the dust settles. It may take awhile, but one chain should be the clear winner at some point. Until then, be careful.
Be very careful.