Update — Blockchain Hard Fork
We wanted to cover the basics of Blockchain before we got into the technicalities but today is an important day in the Blockchain space and hence we wanted to give a simpler (relatively and hopefully) explanation on why. It could probably be the time when new investors can afford investing in the world of cryptocurrencies or it could be the time when those with stakes become richer. The next 10 days would shape how this space is going to be valued.
To explain why this is case, we will provide a little context –
Millions of people transact with Bitcoins and other cryptocurrencies. All these are recorded on the Blockchain which is validated by other people in the network. But, bitcoin is currently limited on the number of transactions that can be processed and added to the digital ledger Blockchain. It can process only 1MB of transactions every 10 minutes. This is because the block size in the Blockchain is restricted to 1MB. This invariably leads to longer transaction times. Sometimes the people transacting want to get their transactions verified and added to the ledger quicker and hence they pay miners to prioritize their transactions ultimately incurring a high transaction cost which is a problem. Increasing the block size is also a problem in a way because in a Blockchain all the computers in the network have a copy of the ledger and if each block size was increased then the storage costs increase however this increases the transaction speed too.
A lot of proposals came through from different developers for scaling the network (think of it as an iOS or Android update) and a bunch of folks got together and decided that the community should go ahead with segwith2x (segregated witness).
Segwit2x is an update suggested by a developer who is not part of Bitcoin core developer team (Bitcoin network’s main developer team). The update is basically nothing but,
1. A parameter that increase the volume of transactions in a block without increasing the block size. It has a way to remove transaction fraud which in a way limits the processing power there by leading to increased volume
2. Increase block size from 1MB to 2MB
Analogy here is for increased profit, we can reduce operating expense or increase revenue or do both.
Both these aspects were to be implemented together under segwit2x which would end up scaling transaction capacity significantly.
Some miners (those who verify transactions and add them to the ledger) are for this update (Large mining organizations, Bitcoin startups etc) and others are against (Bitcoin Core developers and others).
If a majority (at least 80%) of them install this update (switch to segwit2x) between July 21 and August 1, then the operations will continue as is (sped up however), If however a lot of them don’t install this update while others do, then the Blockchain would fork — split into two. As there would be blocks created by folks with 2MB and there would be blocks created by 1MB folks — those who haven’t updated. This would form two parallel blocks ultimately leading to creation of two separate chains.
This trial or prototype period is crucial that way and based on this the value of the cryptocurrencies that power these blockchains will be extremely volatile and the direction of movement is dependent on whether at the end of this trial — is there one or two Blockchain.
Observe the 10 period closely to make a wise investment choice!
