What is Bitcoin’s SegWit2x and what sort of trading opportunities does it curry on?

Bitcoin’s scaling problem (although some have questioned whether the “feature” is indeed a problem, or rather a strength) has generated quite a few headlines lately. Users have been bombarded with acronyms like SegWit2x, UASF, and a variety of BIPs followed by numbers such as 148, 141 and 91. Making heads and tails of the fine mess we’re staring down with this scaling-focused series of updates, is a challenging task for the rank-and-file retail trader, who would only like to know how he/she could profit off all this. Indeed, while the waters we’re about to sail with BTC are troubled, there may be some pretty attractive opportunities hiding in the eye of the storm, or there may be nothing at all there… Let us try to make sense of the paths Bitcoin may take, depending on how politics work out and how the community decides to throw its weight around in the matter.

The process kicked off on July 17, with BIP 91, the very first stage of SegWit2x. At that point, the proposal enjoyed a 76% support among miners, meaning that it does indeed stand a good chance to hit the required 80% support level, for SegWit activation too kick in. If the support level is indeed reached, SegWit locks in till July 29 and it activates two weeks later.

SegWit is the first part of SegWit2x and it is essentially a code-optimization measure, which increases the amount of information that can be crammed into existing 1MB blocks, without actually increasing their size.

The successful activation of SegWit is likely to generate a bump in the price of BTC. According to some, we may see the price of the digital currency double during the first couple of months following SegWit activation.

If BIP 91 fails to garner the required support, and Segwit activation fails, we go to a User Activated Soft Fork (UASF) through which SegWit can still be activated within a year. This measure is called BIP 148 and its advantage is that being a soft fork, it only requires slightly bigger than 50% support from mining pools. Successful SegWit activation through BIP 148 would alleviate the scaling problems of BTC for a short while. Some argue though that the solution is a classic case of “too little, too late”. If the soft fork fails to garner enough support, the BTC blockchain will split, into the old BTC and a new altcoin blockchain.

Let us return to the scenario though, according to which BIP 91 activates SegWit by the beginning of August. In this case, having only covered the first part of SegWit2x, we’re looking at more jitters further down the road.

Before November 1, a more radical measure is going to go into effect: a 2MB hard fork. This measure will increase the size of the BTC blocks from the current 1MB to 2MB, effectively — together with the previously implemented SegWit — more than doubling the data carrying capacity.

Due to its nature, the hard fork needs to reach 100% miner support, and this is what many don’t really understand. Why does it needs such consensus? A hard fork is a sort of “compulsory” software upgrade. To conjure up an example from the world of gaming, following a hard fork style update, those who do not install the update won’t be able to play the game in its post-update form.

Of course, if the 100% support level is not reached, the BTC blockchain will fork into Bitcoin proper and an altcoin. The impact of this fork on the price of BTC will be determined by the actual level of support the measure receives. At 100%, success is locked in and the price will likely react positively. At something like 95%, the forking will likely be completely ignored (at 1–5% support, the resulting competing blockchain will fade away quickly), at 90%, there might be a minor speed-bump. At 80%, the impact will definitely be felt. A 50–50 split is what’s called “the meltdown” by some, and it’s the least favorable outcome for those looking to have the value of their BTC holdings boosted.

Long -term, the price of BTC will continue to rise, regardless of how SegWit2x will buoy it or sink it over the short-run. Right now though, till the end of the year, we’re looking at some pretty rough seas, and traders will have plenty of opportunities to scalp their way to profits.

This story has been originally published on Echofin’s blog