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SegWit2X and Bitcoin network. What to expect

09/12/2017 00:00
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Contents:

  1. The essence of Bitcoin existence in simple words
  2. Difference between SegWit and SegWit2X
  3. Essence of the problems
  4. If SegWit2X occurs...
  5. If SegWit2X does not occur
  6. What are parties chances to win
  7. Possible options of situation development

Now Bitcoin is the centre of cryptocurrency sphere and market situation depends on its condition. If BTC exchange rate grows other cryptocurrencies exchange rate grow. Now it is rather prestigious to own Bitcoins and Bitcoin is the etalon at cryptocurrency stock exchanges. In most cases the users consider the notions of “Bitcoin” and “cryptocurrency” to be synonyms, so it is not surprising that lot of altcoins want to reach the same level of development and popularity as cryptocurrency “first-born”. 

The essence of Bitcoin existence in simple words

Bitcoin is the software the open source code of which can be downloaded at Github service. As it had been initially planned each digital currency user should have kept entire blockchain (joints/nodes). By communicating between themselves nodes exchange information about blockchains and incoming transactions. Common users use specific software wallet raising node and allowing transactions with Bitcoins. Now main BTC wallet is Bitcoin Core.

Now entire blockchain requires around 150gygabites of free disk space so not everyone can allow the storage of such information amount. Such issue has caused the creation of so called “light” Bitcoin wallets having specific server with nodes. This option allows user not to download the entire blockchain during nodes installation (such as Electrum).

Bitcoin open source code means that everyone can download it and change in any manner. This results at the appearance of cryptocurrency fork, which can be entitled in any way he wants.

The cryptocurrency fork can be of two types: soft fork and hardfork. In first case there is no necessity in changing software. In second case some changes are inserted in source code and chain modes require obligatory update. If the update doesn’t occur old nodes will stop accepting new ones and it will result at two completely different systems.

In most cases during hardfork network participants come to single conclusion and start working only at chain new node, by thus causing old node death. But there are the exclusions as well like Ethereum (ETH) and Ethereum Classic (ETC), or Bitcoin Cash.

The support of miners after both forks nodes is accompanied by the appearance of conditions, which differs the transactions made in one network from the transactions made in other network. The importance of this action is justified by the fact that the registers of both systems are absolutely identical after division. In other words in case if you possess one coin before network division, you will have one coin in each network after this process. Even in case of no difference between transactions in two networks, the attack of recurrent reproduction is possible (the transaction from first network is copied and reproduced in second network).

The development of Bitcoin principal wallet is done by Bitcoin core starting from 2011. As most part of developers works for other companies the cryptocurrency code improvement is done on a gradual and accurate. Any changes of Bitcoin Core are made after thorough testing. For example SegWit protocol has been developed in 2015, but it has been launched in August 2017 only...

Bitcoin Core activity is sponsored by the following companies:

  • Blockstream;
  • MIT Media Lab’s Digital Currency Initiative;
  • Chaincode Labs Inc.;
  • BTCC;
  • Ciphrex.

But this sponsorship is rather conditional as most of these organizations have been created by Core developers.

Blockstream Company is frequently associated with Bitcoin Core. But this opinion is not exactly correct. Blockstream has been founded by Core principal developers. This company activity spectrum relates to commercial developments on blockchain basis. Blockstream participants have been participating at 26.7% of Bitcoin code correction during last two years.

Difference between SegWit and SegWit2X

As we have mentioned above the development of SegWit by Bitcoin Core team has been made within two years; the update has been implemented to the wallet of 0.13.1 version. The idea of SegWit lies at specific application of block free space: the signatures of transaction should exceed the level of 1Mb. in other words, SegWit supposes the saving of block previous size but changes the mode of data storage in it.

The SegWit softfork activation became possible only it is supported by 95% of miners registered in the system. It has happened on August 24, 2017 at block 481824. What has become the reason of such long process? The main reason was NYA agreement signed on May 23, 2017 in New York but we will speak about its details later.

SegWit2X should have worked on the same principle as SegWit, but supposes the increase of block size in two times (up to 2 Mb).

The resolution of SegWit2X activation in half a year has been adopted on May 23, 2017 the representatives of 58 companies ( pools, stock exchanges, digital currency exchangers) from 22 countries of the world and keeping 83.28%of Bitcoin network mining capacities by means of NYA agreement signing.

They have presented project implementation plan in august this year:

  1. SegWit activation at 481824 block.
  2. SegWit2X hardfork performance in November 2017 at 494784 block.
  3. Wallets with SegWit2X support:
  • BTC1;
  • Bitcoin Unlimited;
  • Bitcoin Classic.

The hardfork adepts have started the development of their own software titled as BTC1 on the basis of на Bitcoin Core code. BTC1 development has been headed by Jeff Garzik, one of Bitcoin Core developer, who have decided to continue own career.

Let’s remind that Bitcoin Core main repository has been divided three times: Bitcoin-XT, Bitcoin Unlimited and Bitcoin Classic.  Now this is the task of BTC1, trying to save maximum connection with Bitcoin even in terms of title!

On August 18, 2017 Bitcoin Core team has made announcement on the relating to the following aspects:

  • SegWit2X is not obligatory Bitcoin update;
  • BTC1 don’t observe current rules of the system and users ignoring this rule will be isolated from the system;
  • there is no connection between SegWit and SegWit2X;
  • all information about Bitcoin Core is officially presented only at @bitcoincoreorg and bitcoincore.org;
  • BTC1  is in no way related to Bitcoin Core;
  • Developers don’t recommend using other software, claiming that it goes about Bitcoin upgradeр.

The essence of the problem

Approximately hardfork SegWit2X should take place on November 20, 2017 at 494784 block. This hardfork should cause Bitcoin division into two separate nodes. Each node will claim keeping Bitcoin title and BTC ticker. None of such nodes will implement the protection from transactions double reproduction. One of such nodes might disappear, or there might be the cases when both nodes will remain. The main factors are miners’ capacities and the cost of cryptocurrency in each node.

Forks are supported by most part of the miners and large scale blockchain companies, who have signed NYA. The SegWit2X opponents are Bitcoin Core and casual users supporting main developers’ team. The list of companies, who do not support hardfork, is presented here http://nob2x.org/. Since October 11б 2017 Bitcoin has placed on its official website -bitcoin.org the banner denying the companies supporting 2X: https://bitcoin.org/en/posts/denounce-segwit2x.

Some cryptocurrency stock exchanges have supported NYA, but then decided not to interfere in process of so important resolution. It goes about such companies as Bitfinex, Coinbase and GDAX.

If SegWit2X occurs...

In case of SegWit2X:

  • Bigger block will form lesser transactions queue by thus making transaction process faster with lesser commission fees.
  • Bigger block will cause the increase of data distribution time in network and increase of technical requirements for Bitcoin node storage.
  • Such discrepancies might grow the possibility of loss of faith in Bitcoin among network participants.
  • Miners will become Bitcoin owners by thus making Bitcoin to lose its decentralized status.
  • Network main developers - Bitcoin Core will stop their activities related to cryptocurrency.

Network users have long been keeping to the opinion that Bitcoin Core would show insulted air for a while and then support SegWit2X adepts. But such thoughts have disappeared after the statement of one of Core members, Andrew Chow:  «If SegWit2X occurs most Bitcoin Core developers would stop Bitcoin development as the support of this project will mean that companies and miners will completely control currency and it will lose its decentralized status

If SegWit2X doesn’t occur...

In such case

  • Bitcoin will remain decentralized and its faith will be decided by users not by miners.
  • No more tricks and intrigues! Though BTC1 code is open and each person can participate at Slack discussions concerning its development. But in fact there are no discussions there. It means that such discussions are either absent or the code development is done not as accurately as it might seem from first sight.
  • Bitcoin Core will continue Bitcoin code improvement.
  • Miners will not have the possibility to reproduce fork any time they want. As successful hardfork reproduction occurs once, next time anyone will ask for permission.
  • Miners will remain Bitcoin network servants and will remember who they are.
  • Original Bitcoin will save its name and will cause the currency exchange rate growth. This way it will grow the trust of investors.

Parties’chances to win

Saying the truth none knows what will happen till 494784. But there are some objective indices we can site now:

  1. Amount of Bitcoin Core 15.0 nodes. The greater their amount will be the more users will support Core, as nodes 15.0 do not accept SegWit2X transactions: https://bitnodes.21.co. Now the amount of such nodes makes 28.5%, meaning that SegWit2X wins on this index.
  2. Bitfinex stock exchange was the first one who has launched the trade of future coins tokens. BTC1 after fork will be exchanged into original BTC; BT2 will be exchanged into B2X, i.e. Bitcoin after SegWit2X. The more BT1 price exceeds the price of BT2, the more support users will give to Bitcoin Core network. The price of original Bitcoin is three times higher than the one of SegWit2X unit. It means that Bitcoin Core is a leader.
  3. Miners mark SegWit2X support. According to recent data 94%network blocks contain such information. At the same time it is worth taking into account that recently f2pool and Slush Pool, which makes total 15% of the aforementioned index refused from 2X went away as well like other cryptocurrency stock exchanges. It makes corrections to the existing situation.

But according to preliminary data SegWit2X wins.

Possible options of situation development

Before making conclusions it is worth mentioning the following: neither miner nor Core wants to make harm to Bitcoin. Both parties want the currency exchange rate to grow. Anyone will not get surprised that before fork miners refuse from 2X idea it is quite obvious that cryptocurrency exchange rate will grow and everyone will be satisfied. But it is not possible to exclude the possibility that hardfork adepts will manage to reach agreement with Bitcoin Core.

These situations might be the following:

  1. The transfer to SegWit2X will occur and Bitcoin Core will support the growth of block size having renewed its software. Such possibility is around 5%.
  2. SegWit2X will not occur and miners will ignore NYA. In other words everything remains unchanged. The probability is around 10%.
  3. Hardfork will be implemented. Miners will try seeking absolute control over Bitcoin. Let’s suppose that 85% users will mine blocks at 2X network, while others 15% will continue to work at currency original node. Of course 2X will not have any problems with block mining but situation with BTC is completely different. Now Bitcoin mining block makes 10 minutes. After removal of 85% capacities this index will increase one hour. Accordingly the transactions will become slower and commission fees will grow. As we know network complexity will change in 2016 blocks. I.e if SegWit2X occurs at 494784 block and next change will occur at 495936 block. After fork will require additional 15% to mine other 1 152 блока. On the condition that one block mining will take around one hour their mining will take 50 days. Then mining complexity will drop in four times (it goes about maximum allowed changes). After block mining time will make rather acceptable 15 minutes. In three weeks the complexity will regulate and block finding duration will make initial 10 minutes. So in order to return to initial condition after hit Bitcoin will need more than two months.  So none can make forecasts about its price. 2X will be presented in form of new currency like Bitcoin Cash. The probability is around 35%.
  4. SegWit2X will finish. If the cost of original Bitcoin will be higher than the one of original Bitcoin and the coins of SegWit2X nodes, the mining in first node will be more active. If Bitcoin operation will be a little bit slower it will not cause any problems. 2X will become new coin but its price might drop to minimum indexes. The probability is around 35%.
  5. Miners will completely manage Bitcoin system. After moving of all pools to SegWit2X, original Bitcoin will die and users will be forced to go to 2X software. The probability is 10%.
  6. Chaos will arise. Users will have difficulties in understanding the situation and will sell coins from both chains, shifting to fiat money or exchange Bitcoins into altcoins. The probability is around 5%.

The situation is quite risky but one can say for sure that break among Bitcoin users occurs.  It will be possible to say for sure who will lose and who will win after 494784 block mining or even in December...

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