We interrupt this thread to bring you …
A hard fork may leave us with BitcoinSNAFU and BitcoinFUBAR
I was SO hoping to sidestep the entire Bitcoin Scaling Kerfuffle until we had time to discuss all the “Where can I keep my coins?” options. THEN we would circle back around — from a fully informed position — and address the issue of soft and hard forks. Ha, ha, ha, how naïve and silly was that?!?!
The Edward R. Murrow of Bitcoin Blockchain Scaling is Jimmy Song. Follow him right here on Medium and over on Twitter. Jimmy knows his stuff and is as unbiased as anyone, quite an achievement given the level of viciousness surrounding Bitcoin scaling.
Rather than fill this and many more posts with descriptions of this BIP and that BIP and the mess of deadlines and the who-is-on-which-side-of-what, I will leave you in Jimmy’s capable hands. Dude is on top of it. FACT.
Now about that breaking news banner: this week it became increasingly likely that Bitcoin will see a hard fork. And a hard fork has serious implications in our discussion of “Where can I keep my Bitcoin?”
After a hard fork, there would be TWO SEPARATE Bitcoin blockchains. And it within the realm of possibilities that there could be MORE THAN ONE hard fork, resulting in more than two separate blockchains. This is conflict with “Game of Thrones” complexity, played out with crypto-currencies.
Let’s call the been-around-since-2009 Bitcoin blockchain BitcoinSNAFU, and let’s call a new-hard-forked Bitcoin blockchain BitcoinFUBAR. What is the difference between the two? Talk to Jimmy. No, no, that’s rude of me. I’ll try to keep this to two paragraphs …
BitcoinSNAFU has always had a block size limit of 1MB, and is about to enhance the protocol with a technique called SegWit. Through a fabulously clever hack (using ‘hack’ in its original complementary form) SegWit is BACKWARD-COMPATIBLE (this is commonly called a soft fork). An existing exchange or an existing wallet app does not need to be changed at all, and it will work AOK after SegWit is activated. Updated exchanges or updated wallet apps that incorporate SegWit will gain advantages, most notably, more transactions per 1MB block.
BitcoinFUBAR may or may not include SegWit, depending on just HOW fubar things get in the next month or three. In one incarnation, BitcoinFUBAR does NOT include SegWit and takes the simple-sounding step of increasing the block size limit from 1MB to 8MB. That sounds simple, but turns out to be anything but simple. Most significantly, it is NOT BACKWARD COMPATIBLE. An existing exchange or an existing wallet app WILL NOT WORK on the BitcoinFUBAR blockchain. Updates are absolutely required.
There are many permutations in how all this intrigue plays out. Let’s assume that both the BitcoinSNAFU blockchain and the BitcoinFUBAR blockchain live and operate in parallel. THAT likely outcome raises the question: “Which blockchain has my Bitcoin?” Hold onto something: BOTH blockchains have your Bitcoin. Or put another way, you would be the proud owner of BTC-S coins and BTC-F coins. And THAT raises the question: “How do I get my hands on my new BTC-F coins?”
If you are holding your Bitcoin on an exchange, getting your hands on your BTC-F is ENTIRELY up to your exchange. If the new BTC-F coin has decent value, you’ll certainly want those new coins … especially given that your BTC-S coins likely went down in value at the time of the hard fork.
If you are holding your Bitcoin on a wallet app, your predicament may be quite good or it may be unsettlingly bad. Let’s address unsettling bad first: your wallet may not get getting updates anymore (odds vary) AND it may not have a function to export your private keys (odds high). Such a combination leaves you with good BTC-S but no way to get your new BTC-F. Full stop.
Now let’s address predicament quite good, which has two variations. (Honest, I am working very hard to make this simple … though I know it may not APPEAR that I am trying to make it simple.) One variation is easy: your wallet app is updated to support the new BitcoinFUBAR blockchain, so the updated app leaves you with good BTC-S and good BTC-F. Woo hoo!
The second variation of predicament good is “some assembly required,” but is ultimately the best possible scenario. Your wallet app gives you the ability to EXPORT YOUR PRIVATE KEYS. As we all know from this here post, knowing the private key EQUALS control of the associated Bitcoin. That fact holds on BOTH blockchains — BitcoinSNAFU and BitcoinFUBAR — as the same private key controls the associated BTC-S and the associated BTC-F.
On the off chance that anyone is still reading this post, the motivation for “breaking” into the thread is clearly to highlight the tremendous value of holding your own private keys in your own hands. Directly holding your own private keys gives you control of the associated Bitcoin … even when things are completely SNAFU and massively FUBAR.