Here we are now in the face of an upcoming Bitcoin fork; as always, the future is somewhat unclear. Yet, somehow, the days and weeks running up to a Bitcoin fork can be an especially stressful time. Without fail, some Bitcoin users speak of an upcoming fork as if it were a death knell for Bitcoin and the entire cryptocurrency universe. Some may even panic and sell their coins.
In reality, there is not much cause for concern. A ‘fork’ is essentially a software upgrade to Bitcoin’s blockchain that can go one of two ways: it can be ‘hard’ or ‘soft’. A hard fork creates an entirely new blockchain, which also results in the creation of a new cryptocurrency. The new cryptocurrency has its own set of rules, and cannot interact with the old blockchain.
It’s worth noting that forks are actually quite a regular occurrence. In the last several months, there have been two of them. On August 1st of this year, a hard fork that resulted in the creation of Bitcoin Cash occurred; just a couple of weeks ago, another hard fork created Bitcoin Gold.
The last several forks have actually proven to be a rather positive thing for Bitcoin users who held onto their coins through them. This is because Bitcoin users who hold onto their coins through a hard fork will wake up the next morning with an identical sum of the new coin in their wallet. So, for example, if you had two Bitcoins the night before a hard fork, you would have two Bitcoins and two of the new coin the next day.
Most Bitcoin holders regard these hard forks as opportunities for free money and may even buy up more Bitcoins in anticipation of a fork. Last week, the price of Bitcoin rallied 24%; some analysts speculate that the upcoming fork was a contributing factor.
So far, none of the coins created as a result of a Bitcoin fork have managed to replace the original Bitcoin; with Bitcoin growing increasingly strong, this seems less and less likely to be the case in the foreseeable future. This latest fork, SegWit 2x, is scheduled to happen on November 16, 2017.
Scalability and Schisms in the Bitcoin Community
The last several hard forks have occurred because of the issue of scalability. As it stands now, Bitcoin’s blockchain can process one-megabyte’s worth of transactions every ten minutes. That translates to somewhere between three and seven transactions per second. On a network that is being used to send an increasingly high number of transactions at every given moment, the one-megabyte-per-ten-minute limit is presenting a problem; the network is growing slower and slower.
The Bitcoin Cash fork attempted to solve this problem by increasing block size. Bitcoin Cash’s block limit is eight megabytes; it can process many more transactions per second than Bitcoin can. However, some that oppose the fork that led to the creation of Bitcoin Cash argued that an increased block size was just a temporary fix. The fork that created Bitcoin Gold attempted to solve the problem by lowering the mining difficulty, and thereby allowing blocks to be added to the blockchain more quickly.
The upcoming SegWit2x fork will create a new currency that will double Bitcoin’s block size to two megabytes. Additionally, transactions under SegWit2x will be smaller in terms of data size.
The Most Controversial Fork Yet?
The SegWit2x fork does not come without its share of controversy–Bitcoin’s community of core developers does not support SegWit2x, although other high-profile members of the Bitcoin community do.
This fork is the result of the so-called ‘New York Agreement’, which (according to CoinDesk) originally touted the participation of fifty-eight companies spread across twenty-two different countries as well as 83.28% of miner hashing power.
Bitcoin’s core developers put out a statement arguing that “concerns raised by Bitcoin Core contributors and Bitcoin community members about the Segwit2x proposal have not been adequately addressed by its proponents.” One of these concerns is the fact that the fork has been designed without strong replay protection. In other words, the transactions on the new blockchain will be so similar to the transactions on Bitcoin’s original blockchain that spending one coin could result in the duplicate spending of the other.
A lack of replay protection has been an issue with past Bitcoin forks, yet the “SegWit2x proposal intends to repeat the same mistake,” according to Bitcoin Core developers.
Others against the fork argue that yet another Bitcoin fork would fragment the market even further and weaken the overall cryptocurrency ecosystem. Within the last several months, two new cryptocurrencies have been born as a result of Bitcoin forks: Bitcoin Cash and (more recently) Bitcoin Gold.
Preparing Your Coins for the Upcoming Fork
Getting ready for a fork involves the same practices that are good for crypto hygiene in general. If possible, make sure you are using a wallet that gives you access to your private keys; keep a copy of your private keys in ‘cold storage’ (offline, on an encrypted USB drive or piece of paper).
In all likelihood, it may take about a week before anyone can access the new coins distributed to them as a result of the fork. In the case of this particular fork, it will be very important not to rush the process of receiving or spending your new coins.
The specifics of safely transacting with the new coins will become more clear once the fork is over with. For now, steady the course, and eyes on the horizon – no need to worry.