Bitcoin (BTC) has been running into scalability issues, and arguments among Bitcoin miners about what to do about it have heated up. These arguments go back two years but have recently come to a head as Bitcoin difficulty led to the possibility of a Bitcoin fork. The primary issues leading to this conflict include:
- Under the current architecture, only 1MB of transactions are allowed every 10 minutes
- This 1MB block size cap creates a bottleneck during periods of peak usage
- Limitations on this supply have driven up demand and led to an increase in transaction fees. Good for miners, bad for consumers.
- Increasing the blocksize will increase costs for miners
Chinese miners proposed the introduction of ‘Segregated Witness,’ or SegWit, which removes some signature data from transactions, essentially compressing the total size of the block and allowing for more transactions. Bitcoin Miners are currently signaling support for SegWit at 44%. 95% support is needed for adoption.
Core miners proposed a more simple and conservative, yet possibly problematic, counter solution: Make the block size scalable. This is called Bitcoin ABC.
There is a lot of mistrust among Bitcoin miners, which has made the situation more contentious than necessary. Core miners do not trust the appearance of centralized control or organization of the Chinese miners. The Chinese miners, for reasons that are yet unclear, oppose introducing dynamic scalability to the block size.
As the two-year battle to improve scalability comes to a close, a compromise appears to be the solution to the current Bitcoin difficulty. Segwit2x merges Segregated Witness with a doubling of the block size from 1 MB to 2.
Many miners have argued against SegWit and Segwit2x, going so far as to threaten a hard Bitcoin fork if either is adopted. The first and most common reason is that any update, no matter how important, has the potential to sow chaos throughout the environment. Ensuring that all miners adopt the new update is problematic, at best, due in part to the potential incompatibilities (both backward and forward) that can be introduced.
In an attempt to force Segwit2x migration, Bitcoin Improvement Protocol 148 (BIP 148) was introduced with the intent to cause a Bitcoin fork on August 1st if Segwit2x is not activated.
Motivated by concerns about BIP 148 and the high threshold required for Segwit activation, BIP 91 was conceived. Instead of a hard launch date, BIP 91 can activate any time, and the threshold is only 80% instead of the harder to reach 95%.
Initial support for BIP 91 appears strong, leading to confidence that a showdown and possible Bitcoin fork on August 1st may be avoided entirely.
What the Future Holds
The current signaling period does not appear to support BIP 91. Optimism remains high that this threshold will be reached before August.
Segwit2x doesn’t just address the current Bitcoin difficulty. It also addresses perceived weaknesses in the original programming that have held Bitcoin back from further innovation and development. Despite the concerns of conservative miners about the risks of change, Bitcoin needs to evolve, either through Segwit or some other Improvement Proposal.
If a solution is adopted and implemented in a smooth and orderly fashion it is expected that Bitcoin will resume its upward trajectory. Every time a new hurdle is crossed, the entire platform becomes more stable and marketplace trust in the new technology increases.
How the Possible Bitcoin Fork Impacts Other Cryptocurrencies
Cryptocurrencies are still quite new and broad-based support for them is low. Most of the public awareness comes from the rapid run-ups in price that have minted instant wealth in early adopters, but this is not helpful to cryptocurrencies as a whole.
Such high volatility attracts speculators, but it scares off mature industries who otherwise might capitalize on the flexibility and power of this new technology. As the face of cryptocurrencies and blockchain technology, every move by Bitcoin is scrutinized under a microscope. As each hurdle is successfully crossed, trust in Bitcoin increases, and eventually the volatility will stabilize, encouraging a more broad based adoption of Bitcoin.
What is good for Bitcoin is good for Ethereum, Ripple, and all cryptocurrencies. Trust in the underlying technology encourages adoption by more merchants and industries, and as this base grows the trust will also increase (assuming problems are dealt with in a smooth way with a minimum of loss or disruption).
Until the current Bitcoin difficulty is resolved volatility and loss of market capitalization is expected to continue, and cryptocurrency trading will remain low in volume with high volatility. Even after the current crisis is passed the marketplace will remain cool and cautious, wary about future disruptions.
While disruptive, the current situation and others like it are necessary. It is impossible to predict the direction cryptocurrencies will take so it is imperative that the core technology is as clean and adaptable as possible. These issues are normal and to be expected in emerging technologies and new markets.
Once these growing pains subside not only will cryptocurrencies realize their full current potential, but they will be able to expand in new and innovative ways that will make them more powerful, adaptable, and useful to industries, businesses, merchants and consumers alike.