Just as we are moving past the first hard fork of Bitcoin, we are preparing for the next major update called Segwit2x. Much like the successful Bitcoin Cash fork that occurred on August 1st, we are now looking at another hard fork that is likely to occur this November.
Why Another Fork?
For those who missed by last article, bitcoin forks are the mechanism used to introduce new software features within the bitcoin network, specifically changes which are incompatible with the current version of the software. Specifically, to meet the growing demand for Bitcoin, a software change to increase the number of transactions that can be stored in each block (within the blockchain) is going to be introduced. It is called Segregated Witness, or Segwit for short.
Segwit2x, the second version of Segwit (the first version did not receive enough support), is an agreement that is supported by dozens of bitcoin startups and miners. This would also launch a third Bitcoin derivative blockchain, in addition to Bitcoin (BTC) and Bitcoin Cash (BCH).
Bitcoin Cash is Holding On
Regarding the first fork of Bitcoin, Bitcoin Cash is doing quite well, trading at about $300. Although it is difficult to import bitcoin keys in order to claim Bitcoin Cash (a temporary issue while online wallet providers prepare to allow “import” capabilities), those who have accessed their new BCH are trading it, and for most, keeping it rather than trading it in for more BTC.
What Happens Next?
It is anticipated that the bitcoin network will be upgraded to Segwit2x at a specific block number, currently estimated to be block 494,784. Note that as of this writing, the Bitcoin blockchain is at block 480,977, of which approximately 6 new blocks created every hour. So, block 494,784 takes us into November 2017.
This time period will allow miners to prepare the software for upgrade prior to that block’s creation. Then, a new offshoot of Bitcoin will occur, possibly replacing BTC given its greater scaling capabilities.
Scaling is More Than Block Size
Some have asked, if Bitcoin Cash supports a larger block size in order to accommodate more transactions, why is Segwit2x required? The answer is that scaling requires more than a greater block size.
As we see with Bitcoin Cash, blocks are currently taking many hours to generate, and the number of miners is only a fraction of those running the Bitcoin network. (Note that block times will improve for BCH over the next several weeks as the blockchain difficulty adjustment is updated.) That means that for now, the greater block size is only one part of the scaling story. Another part is the strength of the network, specifically the number of miners supporting Bitcoin Cash’s blockchain and the timeliness of block creation.
What’s In Store After Segwit2x?
If we see another successful bitcoin fork, the new Segwit2x-enabled Bitcoin will allow more transactions to occur in each 10-minute block. It will speed up transaction times that have in some cases taken several hours during periods of high demand. And, it will lower the cost of Bitcoin transactions, which had been increasing to more than $1.00 in these same high-demand periods.
On the down side, the larger block size will create greater demands of the bitcoin miners and other “full nodes” that store the entire blockchain, as the blockchain will be getting larger, faster. Of course, this is also a good thing for Bitcoin’s adoption globally, as it demonstrates the growing interest in trading BTC.
In short, I expect another successful Bitcoin fork. It is still unclear, however, whether the original Bitcoin blockchain will continue separately, or whether all miners will move to the Segwit2x fork, carrying the bitcoin value to the new fork.
Whether the original Bitcoin blockchain (with its block size limitation) will be abandoned in favor of this improved version is unclear. We will either have an improved BTC, or perhaps a third variant of Bitcoin that will continue on with its own commodity and its own commodity value. Only time will tell.