SegWit2x vs. BIP 148: the blockchain can split

SegWit2x vs. BIP 148: the blockchain can split

The discussions surrounding Bitcoin scaling issues have been going on for years. This summer, they seem to be especially heated (no pun intended). It is possible that blockchain will be split in two parts on August 1st. Today we will take a look at possible scenarios.

The number of Bitcoin transactions that can be proceeded simultaneously is limited, creating a huge backlog. The problem isn’t new. The Bitcoin community has been trying to find a solution for quite a while, which is totally understandable. Nobody enjoys slow transactions and high fees.

What can be done?

Over the years, Bitcoin enthusiasts have offered a lot of possible solutions, but none of them were chosen to go forward with. The debates have become more and more politicized. If you look deeper, you can see that scalability difficulties are just the tip of the iceberg. The underlying issues are caused by the power struggle between miners, developers and users. Each group wants more control over Bitcoin, which isn’t surprising. Bitcoin is getting a lot of media coverage lately, attracting more investors and continuously setting new All-Time Highs.

SegWit2x and UASF (User Activated Soft Fork) BIP 148 are currently the most talked about solutions. Both options have the same goal – activating SegWit (Segregated Witness) improvement. How they plan to achieve this goal is, however, completely different. The two solutions aren’t compatible, which may lead to the chain split.

BIP 148

Possible chain split is scheduled for August 1st. After BIP 148 is activated, the Bitcoin blocks coming from the nodes that don’t signal support for SegWit will be rejected.  Thus, the miners are being forced to activate BIP 148 by the economic majority.

If a majority of the miners (based on hash power) does not signal support for SegWit via BIP 148 by August 1st, but some of the miners do, the blockchain will split. This way we will have two different Bitcoin tokens: one type of coins will end up on the forked chain, and the other – on the original chain.

Good news is that already existing Bitcoins will be copied to both blockchains. Bad news is that the chain split is always kinda messy, and it’s easy to lose your money

The blockchain that doesn’t implement BIP 148 can later be reorganized into the BIP 148 one, if a majority of the hashrate supports such change. It doesn’t necessarily needs to happen on August 1st. The reorganization means that the non-BIP 148 chain would be wiped off, as if it never existed. Bitcoin miners choose the chain that is more economically profitable to mine for.

SegWit2x

SegWit2x is a result of an agreement made by Bitcoin related companies during Consensus 2017 that was taking place in New York. It has been proposed to activate SegWit as soon as 80% of the miners start signaling it, and then make a hard fork attempt to increase the block size limit from 1MB to 2MB. Implementing such improvements would allow us to have blocks over 4MB as the SegWit itself also contributes to the block size increase. The amount of those who signed an agreement should account for more than 80% of the mining hashrate. The start date was set for July 21st.

How to avoid incompatibility

The main reason SegWit2x and BIP 148 aren’t compatible is an attempt to activate them at different times. If BIP 148 will be activated before SegWit2x, there might be an attempt to activate SegWit without the majority support. In that case, the chain will split.

In order to solve this problem, SegWit2x needs to be activated before August 1st. This way, the blockchain split can be avoided. If all Bitcoin supporting entities that signed an agreement stick to the schedule and activate SegWit, they will account for 80% of the hashrate.

Such scenario, of course, doesn’t necessarily mean that there will be no chain split. As we’ve already mentioned, the main reason for activating SegWit2x is a hard fork blockchain size increase within the six months. If the old chain has enough supporters, it may continue running independently, meaning there will be two separate digital currency networks. It will be similar to what happened to Ethereum. Two types of tokens have emerged after a hard fork attempt – Ethereum and Ethereum Classic.

It is obvious that the Bitcoin community is no longer satisfied with lack of action surrounding the scalability issue. We hope that the problem will be solved with least collateral damage possible. Until then, we would recommend to be extra careful with any transactions after August 1st, until the situation is clear, and to make sure you fully understand the risks.

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