What the fork was that about? The Failed SegWit2x Fork’s Impact on the ICO Market
Today saw the cancellation of plans for another “hard fork” in the Bitcoin blockchain which was an attempt to resolve a dispute over the block size of Bitcoin and the general usability of the cryptocurrency. The cancelled SegWit2x fork followed the successful fork of Bitcoin earlier this year into Bitcoin Cash which similarly stemmed from arguments within the community over the best way to make Bitcoin scalable for heavier transactional throughput. For ICO investors the fork and its effect on the state of altcoin markets more generally is an issue of interest. Cryptonomos felt it worth sharing some general observations about the fork and about the impact of movements in the big currencies on smaller ICO ecosystems.
“There is a considerable degree of volatility in the ICO market,” Cryptonomos CEO, Oleg Poskotin notes, “It’s like an erupting volcano. The market’s highly volatile and there were many crypto investors with a significant portion of their assets parked in Bitcoin in anticipation of the fork. During that same timeframe far fewer ICOs have been hitting their funding mark, with many failing to raise the capital they were expecting.”
Poskotin notes that while anticipation of the fork was probably a factor in the diminished fund raising, “another has been the rising value of Bitcoin. Many reasonable investors will prefer to keep their money in Bitcoin when its value is climbing so dramatically. More than a few coins have dropped in value after listing on an exchange so some investors are cautious before swapping their Bitcoins for ICOs.”
After the announcement of the cancellation of SegWit2x the cryptomarkets responded bullishly with Bitcoin leaping to a record high of over $7,800 before nose-diving back down to the morning’s price of around $7,100. Late in the day it’s now trading around $7400, more than double its price three months ago.
Although not the first fork attempt, SegWit2x was an attempt to resolve issues associated with limited transaction speed which has begun to bottleneck due to the small (1MB) size of each base block in the original blockchain. Earlier this year in August, Bitcoin Cash and the more mainstream Bitcoin (sometimes referred to as Bitcoin Core) each applied different solutions to resolving the problem. Bitcoin Cash enlarged the size of each block to allow for more transaction throughput along the chain. While the majority of traditional Bitcoin nodes altered the format of new blocks to include Segregated Witness, a process of removing signature (witness) data from the original portion of the transaction and appending it as a separate structure at the end of the block, therein also improving throughput but keeping the block small. The failed SegWit2x was an attempt to further upgrade the transaction capacity of the Segregated Witness blocks up to 2MB.
A hard fork in Bitcoin has long been discussed, argued, and fought over within the Bitcoin community. In 2014, Gavin Andresen, former lead developer of the Bitcoin Foundation, published A Scalability Roadmap which directly considered the scaling problem of the 1MB block size that only allowed for seven transactions per second. Andresen proposed both a hard fork and a slowly growing increase in the size of each block. Each hard fork is a divergence of the Bitcoin blockchain that had been built upon the genesis block designed by Satoshi Nakamoto, the group or individual who invented Bitcoin.
‘You take the high road, and I’ll take the low road,’ are the famous lyrics of the Scottish folk song, The Bonnie Banks o’ Loch Lomond, and are said to trace back to the Battle of Culloden and to two warriors eternally separated by a fork in the road. Although there hasn’t been another fork in the road today, it seems unlikely that this battle is over, yet for now at least the high road continues unforked.
