UPDATE: THE NOVEMBER SEGWIT2X FORK HAS NOW BEEN CANCELLED…
UPDATE 2: …OR HAS IT?
There is an obvious lack of clarity over what will happen to each chain, 1X and 2X, after the November Segwit2X hardfork. I have been collecting information on what has been happening on this front and have read opinions from both sides of the battleground — essentially the Core community (developers and supporters) vs. the “big businesses” that signed the New York Agreement, aka the Big Blockers. Please refer to my previous article if you’re interested in only reading the facts and forming your own opinions on the matter. This is a continuation from that article.
What will happen to the 1X (1MB) chain
1X is currently trading at around 86% of the price of 1 BTC; however only around 18.7% of hash power is currently not supporting SegWit2X. This has lead some to believe that the 1X chain will simply not survive post-fork, as it will be subject to double-spending, high fees and potentially 51% attacks. I explored this situation closer and realised that while it probably true that fees are bound to rise with a sudden drop in hash power as supply of transactions drops with a similar demand, it is not necessarily true that double-spending and 51% attacks would permanently damage confidence in the 1X chain.
In order for a mining pool to conduct a 51% attack, they must temporarily halt a considerable proportion of their profit taking only to damage the other chain. While this could lead to a whole bunch of issues as described in this Investopedia article, it is highly debatable if there is enough of a financial incentive for a pool to forego profit taking purely to sabotage another chain, especially when they cannot alter the blockchain’s historical transactions. There just might not be enough of a financial incentive to spend resources conducting a 51% attack in today’s environment where many major exchanges would detect such illicit activity and automatically halt transactions.
On the matter of fees, can the transaction fees on the 1X chain increase so much that people are put off holding and are willing to actively pay the fees just to sell their coin? It is very unlikely that long-term holders, libertarians and especially the Core community would dump their Bitcoin just because the fees rose, again. Besides, the BTC blockchain now has significantly more capacity for transactions than it used to thanks to SegWit. This somewhat helps the blockchain face drops in hash power while maintaining a decent amount of transactions.
To summarise, a consistent and perpetuated 51% attack would likely cause a degree of unfavourable volatility and price/demand reduction but certainly would not be able to create new coins or alter old blocks, so it would not destroy the 1X chain.
Bitcoin Cash vs SegWit2X — The real clash
As we categorise Big Blockers into one group, we forget that this community is formed from many different entities, each having varying agenda that are likely to separate down the road. The mining community does not necessarily agree with the exchanges, businesses or the bankers (MasterCard and the like).
While the Core community have generally remained mostly consistent about their desire to see Bitcoin remain decentralised if not gain more decentralised properties, the same consistency will likely not be observed amongst the Big Blockers who will most likely very quickly diverge on different roads — most likely taking sides in a future BCH vs SegWit2X debate. Note that although both chains will be formed of higher block sizes, 8MB for Bitcoin Cash and 2MB for the SegWit2X chain, only the latter will have SegWit support.
We have already seen support for Bitcoin Cash from the Big Blocker community including key public figures such as Roger Ver and Jihan Wu. On the other side of the fence, we have seen 58 companies including the likes of Coinbase, Bitwala and Bitfury sign up to creating a SegWit2X chain. While many of these companies have remained indecisive about their decisions — Jaxx and Vinny Lingham are a few examples — the Big Blocker community have surely set themselves up for future clashes. Such differences with strong proponents on both sides will likely lead to competition, if not direct threats to the existence of the other chain. Expect volatility on both chains — Bitcoin Cash and SegWit2X.
Closing Comments
I believe the same enthusiasm for decentralisation and “freedom from banks” that has kept Bitcoin alive for most of the last 9 years starting from the financial crisis of 2008 will continue to live, albeit potentially in the form of a smaller market share than that of the current Bitcoin. The Core developers may decide to further implement several updates in the form of an Emergency Difficulty Adjuster (EDA) or Difficulty Adjustment Algorithm (DAA), replay protection, etc. — expect updates from Core developers in the coming months.
The Core and Big Blocker communities quite obviously have their own agendas. The Core community seem to strongly believe in decentralisation and the promotion and sustenance of Bitcoin’s ideology above all else, whereas the community of businesses and mining pools strongly believe in capturing greater transaction volumes and blockchain users, to help generate greater profits. I am in no position to critique either side’s intentions; however I am quite clear on my agenda — not to lose money.
While many of us may wish that there were a middle ground where both parties could meet, this is an inevitable clash that the community saw coming for several years now. While not all proponents of both parties may be motivated by the greater good of the Bitcoin community as a whole, conflict/competition/opposition have often made way to greater things. I am personally confident that there has not been decent discussions between the two opposing parties of Bitcoin.
Conclusion
I expect the overall market cap of cryptocurrencies to thrive in the coming years, in spite of the side-taking and name calling. I believe expectations of chains dying have been greatly exaggerated for various reasons. I believe diversification will be a great weapon against the volatility that is certain to follow the November fork. I do not believe the 1X chain will die, but I do expect price corrections before we see eventual growth resulting from improvements to the protocol. And last but not the least, I expect several more “bitcoin factions” than the few we have today.
All in all, what a great time to be alive.
