Battle of Bitcoin: SegWit2x versus BIP 148

avatar Quebex Fintech Inc.
Jul 14, 2017

Bitcoin remains bearish amidst growing concerns amongst developers and investors alike over the fast approaching August 1st scheduled implementation of SegWit2x, the contentious new protocol intended to solve bitcoin’s scalability problem.

Although most bitcoin miners support the move to SegWit2x, there are some who believe that its introduction will impede bitcoin’s democratic, decentralized nature by affording a small group of overseers and developers far too much power over the coin.

Conventionally, many large teams of co-operating developers would contribute to discussions relating to the managing of the coin; SegWit2x is a potential threat to this relatively harmonious and benign arrangement.

In response to the looming prospect of a forced move to SegWit2x, another alternative protocol emerged from the ashes, so to speak.

The rather ominous and vaguely draconian sounding ‘Bitcoin Improvement Proposal 148’ (BIP 148) is reportedly moving ahead with its user-activated soft fork (UASF) which would seek to push SegWit live without explicitly asking miners for support.

There is a hope that SegWit2x and BIP 148 might be able to work together given that both are attempting to upgrade the network with Segregated Witness (SegWit), a protocol first proposed by developers back in 2015.

There are two likely ways this could play out.

The first involves most bitcoin hashing power accepting the soft fork BIP 148 proposal. In this scenario, bitcoins will continue working as before, and no changes to software will be required for merchants. Miners who wish to remain profitable will be forced to upgrade.

The second involves the owners of a minority of hashing power causing a second version of bitcoin to emerge by issuing ‘new bitcoins’.

Miners mining ‘new bitcoins’ will be compensated by people buying ‘new bitcoins’, and only compensated to the extent that holders of ‘legacy bitcoins’ don’t want to liquidate their ‘new bitcoins’ that suddenly come into existence. If the holders of a majority of the current bitcoins don’t want to support the ‘new bitcoins’, they will be more than capable of destabilizing and crashing the value of ‘new bitcoins’, potentially removing the economic incentive to mine on that new chain. Miners aren’t the only consideration.

Volunteering to be vulnerable to a 51% attack AND being vulnerable to dumping doesn’t seem wise.

Take for instance this analogy: Some guy named Rick forks bitcoin and changes the hashing algorithm to “who has a selfie that looks most like Rick”, and in so doing creates ‘Rick Coins’. Someone with a million bitcoins who thinks this is ludicrous can sell their ‘Rick Coins’ at the lowest price. At about 1 new Rick Coin mined per minute, it would take a million minutes for miners to match the amount of coins this million bitcoin holder is willing to dump. Until demand for ‘Rick Coins’ reaches 1,000,001 ‘Rick Coins’, miners can essentially be shut out from reaping any benefit from their mining activities.

Adding to the issue, there are some who argue that the projects are ultimately incompatible with one another and cannot coexist in any way, shape or form.

Truly, a hard fork forced by a minority of miners is a shoot-out at high noon against both a mining community that outnumbers them and (presumably) a bitcoin owner community that outnumbers them too.

The average price of one bitcoin is currently $2,875.52 CAD as of 12pm, ET, Friday – down 5.32% in 24 hours, according to price indexing data from CoinDesk.

Furthermore, despite showing signs of progress on Wednesday, the entire cryptocurrency market has regressed into its recent bearish trend.

Most if not all coins are showing as red and total market cap has fallen to a very disappointing $98.8 billion CAD – down another $15 billion CAD since Monday, according to CoinMarketCap.

How bitcoin’s scalability problem is handled could make or break the coin; watch this space…