Should be known as the year of Segwit. The cryptocurrency community was introduced to this new system during the year and thus far has felt the impact twice with the promise of a third hard fork looming for later in November. We take a look at 2017 and what the market impact of Segwit2X has been – the good and the bad.
Background of Segwit2X
Segwit2X is a result of the New York Agreement that was formulated in May 2017. The agreement was drafted by miners and developers and aims to increase the Bitcoin blockchain from 1MB to 2MB. Ever since its introduction to the world in 2014, Bitcoin has grown to such an extent that the blockchain is failing to keep up with the demand for the golden standard of the crypto world. Transaction delays and consequent congestion has forced the crypto community to come up with a solution to the problem. Remember that Bitcoin has open source software and even though Segwit2X may solve a lot of problems the community are currently experiencing, there is no way of telling what the future holds and if a soft fork may be required at a later stage. One can look at a hard fork as a way of upgrading a system’s software in order to accommodate more transactions and to ease the process.
What is the purpose of Segwit2X?
As previously explained Bitcoin is experiencing scaling issues such as slow transaction speeds, high transaction fees and more. In order to make dealing with Bitcoin more convenient, a group of miners and developers decided to implement Segwit2X. In a nutshell, Segwit2X proposes a 2MB hard fork and the activation of a segregated witness at a threshold of 80%.
What is Bitcoin Gold?
During the previous hard fork that took place in July 2017, all holders of Bitcoin were given free Bitcoin Cash. This time around Bitcoin holders received Bitcoin Gold, if their Bitcoin was held on certain exchanges who granted their customers the new crypto. Bitcoin Gold is a way of Bitcoin to improve itself. Bitcoin Gold is ASIC resistant and works through a proof-of-work change or Equihash. The aim of this is to encourage a ‘decentralized mining ecosystem.’ Even though many investors are skeptical about the implementation of these new systems, there is still hope as Litecoin previously incorporated these systems successfully. With Litecoin, miners can mine blocks every 2.5 minutes as opposed to Bitcoin’s block that takes 10-minutes to produce. Bitcoin Gold is a branch of Bitcoin and does not differ that much from it, besides from its PoW protocol. For this specific reason, a lot of people in the crypto community do not support Bitcoin Gold. The other reasons why they are not supporting Bitcoin Gold will be discussed later.
Segwit2X and the New York Agreement – What does the future hold?
The New York Agreement (NYA) was introduced by Barry Silbert, who now owns the Digital Currency Group and was meant to regulate Bitcoin trading in the U.S. At that stage the key role players in the crypto world were Bitmain, Coinbase exchange, and BitPay. The final part of the NYA is now drawing closer and the crypto world is likely to see another hard fork some time in November this year that will increase the size of the Bitcoin blockchain.
Why some are not supporting Segwit2X
Though a lot of people consider Segwit2X as the answer to the Bitcoin scaling issue, there is a rather large group who disagree. Pretty soon, the Bitcoin community (miners and developers) will have to agree whether or not Segwit2X has been successful or not. Should a part of the group disagree, Bitcoin could be split into two networks. Some believe that Segwit2X’s system does not implement the benefits of a hard fork split that should increase capacity of the block chain. They also believe that the split may take control of the coin away from its holders. Thus far, a lot of exchanges have jumped onto the band wagon and listed both Bitcoin Cash and Bitcoin Gold. But one must remember that these companies or exchanges have thus taken control of client’s Bitcoin, which is directly the opposite of what Bitcoin stands for. So, these companies should, therefore, give customers the ability to withdraw these coins that resulted due to the split. There is also the possibility that miners could ignore all of this and continue mining as before. This could have severe repercussions as it could encourage the crypto community to follow suit. The community has become opposed to third party mingling and aiming to control the system, which is meant to be decentralized. Only time will tell.
The problem with Segwit2X
Segwit2X hopes to lead to a decrease in transaction fees. But what will the impact of this be in the long run? One blogger argues that due to the increasing demand for a blockchain, fees are likely to increase. This will happen regardless of the size of the blockchain. Further concerns with Segwit2X and in particular Bitcoin Gold is that it does not provide adequate protection against replay attacks. This is a hack threat that may occur during the implementation of a hard fork. It is very important that Bitcoin holders be in control of their own private keys and never give these keys to strangers. Various exchanges who did not give their customers Bitcoin Gold gave the following reason: The code is not open sourced and have not been tested yet.
Segwit2X in November
It has been a bit of a roller coaster ride for the crypto community in the last couple of months. The price of Bitcoin went down when China announced that it may block Bitcoin transactions. However, Bitcoin quickly recovered from this upon the introduction of Bitcoin Gold and reached a record high of more than $6 300. November may see another hard fork but from the looks of it, this may not occur as a large crowd of Bitcoin role players are opposing the suggestion. This is mainly due to its replay protection issues. On the other hand, should another hard fork occur, it will eliminate all possibilities that Bitcoin can be dethroned as the gold standard of cryptocurrencies.