Segwit2x Bitcoin Hard Fork
All what you need to know about Bitcoin Hard Fork
During this year, Bitcoin appeared in the news because of different situations. One of the reasons was its price, that since the beginning of the year, and until now, it grew almost eight times. But another reason was that the Bitcoin community was discussing Bitcoin blockchain separations. Bitcoin Cash, Bitcoin Gold and Bitcoin Segwit2x, are terms that appear in the news very often. But, what does it mean for Bitcoin and the cryptocurrencies? Let’s take a look.
Bitcoin Hard Forks – What are They?
A hard fork, is a change in the blockchain protocol that modifies specific characteristics of the blockchain. This situation creates a fork in which two blockchain take different paths. The new blockchain follows new rules different from the ones in the older chain. In this way, information in one chain can’t be accepted in the other one.
Bitcoin is built based in a technology named blockchain. Every time we perform a Bitcoin transaction what we do is to send information that is stored in blocks. Every block in the Bitcoin chain can handle a limited amount of transactions due to the space they have. Bitcoin Legacy (this is the original Bitcoin network), has 1 MB blocks. Bitcoin Cash, presents 8 MB blocks. The Segwit2x version wants to change the block size to 2 MB. Bitcoin Gold has 1 MB blocks by default. But Bitcoin Gold did not want to change the block size. Bitcoin Gold supporters were focused in other characteristic of the chain: the way Bitcoin Gold can be mined.
For instance, this year was a divided one. Three different hard forks in the Bitcoin blockchain and one hard fork in the Bitcoin Cash blockchain. Bitcoin community suffered from them, but Bitcoin price does not seem to care about it.
That specific hard fork hard fork had the intention to increase Bitcoin block size from 1 MB to 8 MB. Bitcoin community was debating the previous weeks to the hard fork about what is the best for Bitcoin. The main argue was that 1 MB block size was not enough to handle all the transactions in the network. This was making Bitcoin payments hard to do. Fees were getting higher and transactions too slow.
Bitcoin Cash supporters believed that Satoshi Nakamoto’s main intention was to create a peer-to-peer payment system. Low fees and fast transactions were between the main ideas of Bitcoin. After some time, the decision was to increase the Bitcoin block size to 8 MB.
As the Bitcoin network could only handle 3 transactions per second, it crated several problems. Transactions were not confirmed even after days, and fees were extremely high. That was making Bitcoin not useful anymore. Bitcoin Cash wants to give back Bitcoin a network with fast transactions and low fees.
Since the Hard Fork occurred on August the 1st, Bitcoin Cash price followed a downtrend from $972 to $280 dollars. Since some weeks, Bitcoin Price tripled and it is being traded around $600 dollars. At the same time Bitcoin price followed an uptrend that started at $2600 and arrived, today at $7600 dollars.
To understand what Bitcoin Segwit2x wants to achieve, we need to understand what Segwti2x is. Segregated Witness is a protocol in the blockchain that allows transactions to be smaller in size. To clarify, Segregated Witness allows every block to process more transactions without upgrading the block size. The way that segwit works is as follows: the data involved in the transactions gets separated from the signature. That allows to reduce the transaction size in order to liberate space in the block. If Segregated Witness is used in every single transaction, the blocks would have a space equal to 1.7 MB.
The intention in SegWit2x is not only to liberate space through Segregated Witness protocol. The intention is to increase the block size to 2 MB. Bitcoin Cash supporters believe that the 2 MB block size is not enough. This is the reason why Segwit2x has “2x” in its name. Bigger blocks are needed to allow new coming users to enjoy low fees and fast transactions.
One of the critics to this fork is that it does not support replay protection. This mechanism provides any individual holding Bitcoin, the safety that they will not suffer replay attacks. As the network is vulnerable when a hard fork occurs, replay attacks may happen. Attackers can replicate a transaction done in the new blockchain in the original Bitcoin chain. In this way, the transaction gets duplicated and the funds lost.
This Bitcoin hard fork is expected for November the 16th according to this website.
Bitcoin Gold focuses in a different story. This hard fork, that occurred during the last week of October, pretended to “make Bitcoin decentralized again”. Bitcoin Gold supporters believe that Bitcoin mining has gotten exclusive to some few mining companies. Individuals are not able to acquire strong processors (ASIC) that big mining firms use.
Satoshi Nakamoto promoted Bitcoin as a truly decentralized virtual currency. But at the moment, the mining power is exclusive of some mining enterprises. Bitcoin Gold allows individuals to mine with GPU power and not with ASIC processors. GPU power is cheaper and easier to get for normal people. In this way, the public can have an easier access to mining Bitcoins.
The block size discussion between Bitcoin, Bitcoin Cash and Segwit2x does not affect Bitcoin Gold. The main reason Bitcoin Gold was created was mining decentralization.
What Does Happen With Bitcoin When a Hard Fork Occur?
When there is a hard fork, the owners of Bitcoin will be, in some way, benefited from it. Why? Well, because when the chain splits, it keeps all the older information but follows a new way. If an individual had Bitcoin at the moment of a hard fork, he will receive the same amount of Bitcoin in the new blockchain.
This could be one of the reasons why Bitcoin price is breaking records every single day. Even when experts agree that a correction may happen soon, Bitcoin price keeps rising. Lots of investors prefer to acquire some Bitcoins and then see their money multiplied after the fork.
Due to the fact that when a hard fork occurs the network is vulnerable to attacks, exchanges platforms tend to suspend transactions. Before hard forks, trading and platform exchanges announce (or not) which their approach to the new blockchain will be. Regarding Segwit2x hard fork, different cryptocurrency exchanges presented their postures on the matter.
There is a webpage that lists the majority of the platform exchanges and their policy towards the hard fork. For example, Blockchain.info, declared in a statement that depending on the hash power, they will decide which blockchain to follow. Coinnest, has commented that they will fully support the Segwit2x hard fork. But Poloniex did not say anything on the matter yet.
If you have the private key of your wallet, then, your Bitcoins should be safe. It is important to avoid doing transactions some hours before and after the hard fork. The network needs to get stabilized after a blockchain split to avoid further problems.
Images courtesy of Pixabay, Investopidia and Coinmarketcap
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