When you first enter the Bitcoin marketplace, you find that there’s a huge learning curve, just to get up to speed.
For starters, the concept of digital currency without any backing except consensus is a leap of faith. But once you’re there, you’ve only just begun to learn.
The Bitcoin world is filled with its own litany of jargon and terminology that all sounds very official, and as though you’re missing out on some huge field of expertise. And then you see Bitcoin loyalists fighting on Twitter over a series of terms that are effectively meaningless to you.
Questions over forks, SegWit, SegWit2X, legacy chains, and more.
The recent discussion that has made the headlines is the internal controversy over Segwit2X, or, rightly called Bitcoin2X (or B2X for short). This new Bitcoin is a hard fork of the original BTC chain, and will have impact on your wallet, if you’re in cryptocurrency when it happens.
What Is B2X Anyway?
Excellent question. The answer, however, requires a bit of background in order to explain. Bitcoin is built on ‘blockchain technology’. Blockchain is the new ‘in’ technology, and (to keep it simple) is a distributed database where everyone on a network can see and verify all new datapoint entries.
In layman’s terms, the blockchain is a way of programming that allows everyone to see every single transaction and to validate those transactions in ‘blocks’. These blocks hold the data for each transaction, and each block has a maximum data limit of 1MB. This means that each block can only store and validate a certain number of transactions.
This 1MB block limit has worked well for Bitcoin from its inception. So, you may ask, why all the debate about something that’s working.
After all, if it isn’t broken, don’t fix it. Right? Maybe.
Things were running along smoothly with Bitcoin, so long as it stayed in the shadows of the financial world. While few transactions took place, little needed to be done to increase transaction throughput, or to allow for more overall data on the network.
However, with the sudden spike in Bitcoin interest, and the resultant increase in Bitcoin transactions, the need for more transaction space has become real. This has lead to a massive internal debate over how to ‘scale’ (increase transaction volume) the Bitcoin blockchain.
After a number of months of arguing among Bitcoin insiders, the debate concluded with and agreement and document nicknamed the New York Agreement (NYA). This document detailed a lengthy scaling plan for Bitcoin and was agreed upon by the vast majority of Bitcoin miners and developers. It included two main steps – first SegWit, and then SegWit2X.
SegWit has already taken place, having been enacted via ‘soft fork’ in August. “SegWit” stands for Segregated Witness – meaning that the transaction itself is divided from the witness portion of the transaction. The witness portion is pool with others, and this division creates more space on each block for more transactions. The solution is working well, with increasing adoption among users.
What Lurks Beneath
While the signers of the NYA all agreed in principle to the chain edits, they did not know the specifics of the code that would be used. Rather, they were excited to see transaction volume increase, but were pensively waiting for how that could be done. Developers set to work.
The SegWit soft fork took place with no apparent change to the platform. Transaction volume has increased, fees have dropped (in some cases to zero), and the whole system is running well. However, the Bitcoin2X hard fork will produce two chains – the legacy chain (BTC for the purpose of this article) and B2X (new SegWit2X chain). The problem for programmers is that once the chain splits, there is no ‘replay protection’.
Replay attacks are the ability to input and complete a transaction using the same funds in two different places at the same time. Replay attacks can happen in any financial sector, but are particularly dangerous for Bitcoin. Without replay protection, these attacks would allow savvy hackers to use their Bitcoin twice, once on each chain, and then receive goods or services for both, the sellers being left holding an empty bag.
To get just a little technical, the previous blockchains for both the BTC and B2X chains will be identical, meaning that all the previous blocks are copied from the BTC blockchain onto the B2X blockchain, and then new and distinct blocks are added to each chain thereafter.
As it currently stands, the B2X proposal does not contain replay protection as an included feature. Some exchanges have already begun working toward platform specific safety features, but the complexity of the transition is massive. With the risk being high and the solutions being difficult, many original signers of the NYA have retreated.
What Do You Need to Know?
If you’re not a member of Bitcoin Core, or an active contributor in the marketplace, all of this is mostly just interesting. When the fork occurs, you’ll get an equal amount of B2X for every BTC you own.
However, after the fork, some things may change. Miners are currently signaling that the hard fork will occur at a rate of 85%. This may change before the time comes for the fork to occur, but it’s still a plausible reality that only 15% of the miners will remain on the legacy BTC chain.
If this happens, a normal 10 minutes block transaction time could potentially skyrocket to somewhere around 65+ minutes, and with the slower times, mining fees and transaction fees would increase exponentially as well.
If your intention is to hold your BTC, the change will have little effect on your bitcoin wallet of choice, except to give you more coins. However, if you are seeking to use your BTC as currency – accomplishing daily tasks like renting movies, buying food, and online shopping – the effectiveness of BTC transactions would be interrupted. Miners will continue to mine, but the fork may produce a new set of protocols that miners would have to adhere to, and thus would likely produce a temporary readjustment of the mining processes, halting transaction blocks for a short time.
Whether B2X is just a fad that will quickly pass away, or if it replaces the original BTC forever, the movement of the marketplace to scale Bitcoin is publicly airing the dirty laundry of the cryptocurrency. While the freedom and decentralization of Bitcoin is a huge benefit, the dangers of autonomy and self-governance are being played out in front of our eyes.
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