Potential Bitcoin Hard Fork

Big News: Potential Bitcoin Hard Fork

The upcoming potential Bitcoin hard fork has completely dominated the news cycle for the last month, and is likely one of the causes behind the large pullback we’ve been experiencing in crypto lately. If you’ve been overwhelmed with terms like BIP148, Segwit2x, Bitcoin Core vs. Bitcoin Unlimited, and so on, you’re not alone - it gets complicated quickly.

The whole debate has to do with scaling. All systems go through growing pains. Think of the early days of the internet and how limited it was. We’re experiencing some of these growing pains now on the Bitcoin network as transaction times are too long and the fees much too expensive.

transaction fees

Most of the debate at the moment revolves around the size of Bitcoin blocks. Currently Bitcoin blocks are 1MB in size and are able to process 7 transactions per second. (In contrast, Visa processes thousands of transactions per second.) One proposed solution is to increase throughput by increasing the block size to 2MB; essentially widening a three-lane freeway to six lanes and allowing more transactions to be processed.

Opponents of the block size increase argue that this change could centralize Bitcoin in several ways. The main worry is that the increase will make it more difficult to mine bitcoin, resulting in only the biggest mines with the best hardware profitably mining bitcoin, thus further centralising the Bitcoin Miners' power.

There are a flurry of different proposals that all reflect different group’s interests and their views for the future of Bitcoin. The two main proposals at the moment are SegWit2x and BIP 148. Both of these proposal introduce something called Segregated Witness or SegWit. If you want to better understand SegWit (or you're having trouble sleeping) we’ll refer you here, but basically SegWit allows for more transactions on the blockchain by decreasing the amount of data stored in each transaction. This allows for an effective increase to the block size without any actual changes in the block size or Bitcoin code - no upgrade required.

SegWit2x proposes to introduce Segregated Witness, and then a few months later increase the block size to 2MB and require users and miners to upgrade to the new protocols. This proposal already has a big share of the Bitcoin businesses and miners, in total representing about 80% of the hash rate. BIP 148, on the other hand, will introduce SegWit but will not increase the actual block size.  

This flowchart does a great job outlining the possible outcomes and the dates they are expected to happen:

The worst scenario is a Hard Fork, where not everyone can agree on one of these proposals and essentially Bitcoin splits into two different blockchains. This would create all kinds of problems and confusion. Which coin will exchanges and wallets support? From a marketing perspective, which is the real Bitcoin?

In summary, things will be intense over the next few weeks as we wait to see which proposal gets implemented. Check out these great resources here and here to stay on top of the debate. We'll be revisiting this again over the next weeks as the decisions will likely affect all of crypto. 


Interesting Articles

  • Countdown to the potential hard fork, a thorough analysis of the different viewpoints and the key dates to keep track of. Link

  • Hedge funds are moving into the cryptocurrency realm at a rapid pace. 15 new hedge funds are slated to launch in 2017. If nothing else, they will help bring a lot more money into the space. Link

  • An analysis of previous crypto market cap corrections. Extrapolating the average of these past corrections estimates a 79% downturn lasting into January 2018. Currently we've only dropped about 35% percent from the high last month. Link

  • Vinny Lingham’s company Civic just launched 20 partnerships to provide two-factor authentication and login services using the blockchain based Civic app. This represents 250M monthly active users potentially using the blockchain, and they won’t even realise it. This post gives great perspective on why “Tokens Are Eating the World”. Link

  • Token Summit was a conference held immediately after Consensus back in May. The content focused on tokens and cryptocurrencies specifically and how the potential impact they may have on regulation, our economy, and investments. All the videos are now posted here. Link

  • Tweet showing the Ethereum nodes around the world, now over 25,000. Link

  • ICYMI, some guy held up a ‘Buy Bitcoin’ sign behind Federal Reserve Chairwoman Janet Yellen as she was speaking. The guy then collected over $15,000 in tips. Link

Chart of the Week

By some measures fundraising through token sales has outpaced traditional VC fundraising. Check out how the top ICOs compare in terms of the amount of money raised. There has been over $1 billion raised so far this year alone, in a whole variety of categories.