BHB NETWORK OFFICIAL STATEMENT ON THE PROPOSED “SEGWIT2X” HARD-FORK

7 min readOct 20, 2017

The BHB Network is a Research & Development project committed to the long-term success of the Bitcoin protocol, intended as open, trustless, independent, permissionless.

We regard the ongoing effort toward the scalability of this protocol as a very important issue, that has to be faced in a safe and responsible way, that doesn’t compromise Bitcoin’s decentralisation and censorship-resistant nature. We believe that such principles are not compatible with the contentious hard-fork attempt called “Segwit2X”.

On May 23th, 2017, the Digital Currency Group released a statement publishing the so-called “New York Agreement” (https://medium.com/@DCGco/bitcoin-scaling-agreement-at-consensus-2017-133521fe9a77), a proposal signed by 58 companies to introduce two changes to the Bitcoin protocol: a soft-fork to activate the Segregated Witness upgrade and, 3 months later, a hard-fork to “increase the block size to 2MB” (this expression is actually inconsistent with the gradual block-size increase already deployed with the SegWit upgrade).

We at BHB Network supported the activation of SegWit as a positive change, responsibly studied, debated and tested and safely deployed via a soft-fork with strong community support, through BIP141. This upgrade was activated successfully in the second half of August 2017.

The SegWit upgrade offers many advantages, including a fix to the problem of external transaction malleability, very important for the development of the Lightning Network technology, which, we believe, is fundamental to scale Bitcoin through trustless off-chain transactions. This technology allows to scale up even to millions of transaction per second, while the number of transactions available on-chain before the activation of SegWit was just above 3-per-second (VISA usually sustains around 5.000 tps). SegWit alone, with the witness discount, constitutes an increase of the maximum block-size (from 1 MB to around 1.8–2.2 MB realistically, depending on the adoption of this new kind of transaction format).

According to some of the proponents of the so-called “Segwit2X” hard-fork, an additional increase would be strictly necessary to allow enough on-chain transactions before the Lightning Network is fully deployed. At the current state, however, blocks are often not full: some of them don’t even reach the size of 1 MB.

Acceptance by the community

As another block-size increase doesn’t make any technical sense (it comes very close to the previous one, it still doesn’t represent a long-term scalability solution, it is forced on the network without serious debates, studies, simulations and tests), it was from the beginning opposed by all the active Bitcoin developers.

(https://en.bitcoin.it/wiki/Segwit_support)

Furthermore, this “2MB” (incorrect and misleading denomination) change would be deployed as a hard-fork. A hard-fork has no backward compatibility and creates a serious risk of splits, more so if it’s not unanimously accepted by the ecosystem. In order to successfully deploy a hard-fork upgrade, we would need a proposal that strongly improves Bitcoin in a way that cannot be achieved by any other method, with few or no negative aspects and with the global acceptance of the community.

“Segwit2X” doesn’t show any of the above mentioned characteristics. It’s not widely accepted, all the active developers are vocally against it, many polls among the community show a strong opposition by users and, thanks to recent initiatives by Bitfinex and Okex, we have a clear signal that it isn’t supported by the majority of the market.

Absence of replay protection

A contentious hard-fork which splits the network is always a bad idea, which weakens the overall network effects of Bitcoin, draining important scarce resources (hashing power, market cap, development efforts) from it. That said, if someone really wants to create an altcoin by splitting the Bitcoin main chain, nobody has the right, or the power, to stop him.

But even such kinds of Bitcoin clones should be deployed in a way that minimizes the damage to existing users. A minimum responsible requirement, in order to avoid losses of funds, would be the implementation on the clone of a strong, mandatory two-way “replay attack” protection (something that the BCash alt-coin has done successfully, if only at the last moment). Not implementing a strong replay protection while performing a chain split would create a lot of confusion, with several transactions going through against the will of the owner of the funds. (https://themerkle.com/what-is-a-bitcoin-replay-attack/).

As of now (20th of October), the ‘Segwit2X’’ team has not provided any replay protection strategy. They tried to implement an opt-in mechanism, which however may have undesired effects, so they had to remove it (http://www.trustnodes.com/2017/10/10/segwit2x-removes-opt-replay-protection).

An even more responsible approach, to protect users and to limit useless financial losses, would consist in the creation of a new, distinct address format.

“Segwit2X” as “a compromise”

Any block-size increase, despite the possible throughput advantages, shows a lot of drawbacks, for example leading to more centralization, because of higher orphan rates, higher costs to maintain validating full nodes, higher risks of network partitions and ‘selfish mining’ attacks. A centralized Bitcoin loses its properties of censorship resistance, without acquiring the advantages of competing centralised payment systems. A centralised blockchain is, in fact, just an overly-complex, inefficient database.

Originally, the “Segwit2X” proposal was presented as “a compromise” between a part of the community insisting on immediate and huge block-size increases and those who wanted to scale more slowly, organically and using when possible off-chain approaches. “Segwit2X” completely failed as a compromise: the former party still performed a chain split via contentious hard-fork on August 1st, creating an altcoin called “Bitcoin Cash” or “BCash”, without SegWit and with 8MBs maximum block-size.

If one really wanted to have SegWit and also an additional block-size increase, an alternative, safer approach would actually be the support for a majority soft-fork on BCash, avoiding a second split on the Bitcoin mainnet.

Who controls Bitcoin?

Currently (20th of October, source www.coin.dance), the string “NYA” is being included in the coinbase transactions by roughly 85% of the hashing power, even if it was advertised to have 95% or more (considered to be a requirement even for a safe soft-fork).

Writing acronyms inside coinbase transactions has a limited meaning: F2Pool’s CEO, for example, announced at the beginning of September that his mining pool is opposed to “Segwit2X”. However, F2Pool was still signalling “NYA”, and kept doing so until October 12th 2017, when it stopped completely. “NYA” strings are being currently signalled even on blocks mined on BCash chain, which in theory wouldn’t make any sense, since BCash emerged to avoid SegWit altogether.

Most importantly, miners do not have the power, the right or the role of dictating how Bitcoin should evolve. Whoever proposes a change to the rules governing Bitcoin, especially if he claims to be “upgrading” it, has the burden to prove that the proposed changes have the overwhelming support of developers, users, miners, businesses, markets and holders.

The current state of the proposal

Many of the companies that initially signed the agreement have recently withdrawn from it, pointing out that there is no actual consensus behind this “Segwit2X” hard-fork:

F2Pool (China)
Bitwala (Germany)
Vaultoro (Germany)
Wayniloans (Argentina)
BitOasis (United Arab Emirates)
Cryptofacilities (UK)
surBTC (Chile)

Many others, such as the miner Bitfury, declared that they always interpreted and will interpret the proposal just as a way to avoid chain-splits, and they will not feel committed to support any action that could actually cause another one, and that they will only support the chain which has the economic majority or is supported by the Bitcoin Core developers.

Other companies pivoted away from Bitcoin, moving to Bcash, so their stated support for the New York Agreement has no meaning in respect to Bitcoin.

(For an updated list: http://segwit.party/nya/)

Conclusions

We think that “Segwit2X” is actually an attempt to perform a political takeover of Bitcoin.

As it has no technical justifications, but only political reasons, and as it’s very risky and unsafe, we cannot but completely oppose “Segwit2X”.

We invite the companies still upholding the NYA to withdraw from it. There is still time to avoid dangerous and disruptive splits.

We recommend to users to make sure they are in full control of their own private keys, and to remove their bitcoins from compromised third-party services. (For more details, follow the advice provided here: https://bitcoin.org/en/alert/2017-10-09-segwit2x-safety).