Bitcoin Fork? Where Do We Go from Here?

Bitcoin Fork? Where Do We Go from Here?

What the issues of Bitcoin scalability is?

First of all, what is this so-called fork “crisis”? It originated from a problem called “scalability issues” caused by restrictions on the Bitcoin system.

Due to scalability issues, it is believed that Bitcoin transactions can be recorded in one block sized up to 1 MB. When a transaction exceeding 1 MB is executed, all transactions can not be recorded in that block, hence the scalability issues. As a result, Bitcoin blocks experience transaction delays and an increase in transaction fees. This has become problematic as the amountand scope of bitcoin transactions has expanded.

Numerous proposals have been made in the form of BIP (Bitcoin Improvement Proposals).

Segwit(BIP141) – Suggested by Core Developers

Segwit by core developer

In order to cope with Bitcoin’s scalability issues, it became necessary to update the specifications to a system that can handle ever-increasing transactions.

In October 2016, a core developer from Bitcoin Core (the foundation of bitcoins), announced a soft fork called Segwit as a countermeasure against scalability issues.

Segwit (BIP 141) substantially increases the number of transactions that can enter the block by compressing transaction data and the implementing an off-chain trading function called “Lightening Network.”

BIP 141 will be activated by with the approval of 95% of miners; however, it faced heavy opposition and a long wait to gain this approval. According to miners, off-chain transactions may increase due to Segwit, thereby causing mining fee to decrease. It took miners a long time to finally come around to the benefits offered by Segwit.

 

The Dangers of Frequent Division

Community BreakupーThe Birth of Bitcoin Unlimited

Bitcoin’s scalability issues were drawing attention from the core developers for about 3 years before Segwit was finally conceived.

Private meetings such as Bitcoin Roundtable and Satoshi Roundtabe were held several times and there was an aspect where opinions differed. As a result of the prominent division of the community concerning these circumstances, Bitcoin Unlimited (BU) was announced in January 2016 as a counterpoint to Segwit.

Many of anti-Segwit miners supported Bitcoin Unlimited, further deepening the divide between Bitcoin Core faction and Bitcoin Unlimited faction.

The separation of Bitcoin Unlimited from Bitcoin was disadvantageous for both sides. Within From the outset, community discussions were encouraged regarding the danger of bitcoin splitting.
Finally on March 18, 2017, 19 major exchanges jointly stated that – if enacted – the Bitcoin Unlimited hard fork will be treated as a different currency (BTU) from bitcoin (BTC). The incentive to adopt Bitcoin Unlimited gradually faded away.

Conflict Over Segwit Activation – UASF & UAHF

As SegWit implementation based on BIP 141 was delayed and the risk of a hard fork of Bitcoin Unlimited approached, UASF was proposed on March 12, 2017 to encourage Segwit adoption.
UASF is an abbreviation for “User-Activated Soft Fork,” which forces execution of Segwit’s soft fork even if it does not get the support of 95% of miners on August 1, 2017.

For BIP 148, blocks that have not activated Segwit will be disapproved after August 1, so if Segwit is not activated by August 1, there is a possibility that the chain will produce an unintended branch. One of Bitmain ‘s leading mining pools announced UAHF (User – Activated Hard Fork) as the UASF gained support.

In order to counteract the activation of Segwit by users, mining would be performed using the Bitcoin Unlimited client, intentionally raising a hard fork to try to break Bitcoin.
In this way, the discord over the activation of Segwit reached chaotic levels, and there was the possibility that the bitcoin itself might unintentionally split.

Proposasal to Avoid Split Via Segwit 2X (BIP 91)

Division avoidance

On May 23, 2017, DCG (Degital Currency Group) proposed SegWit 2 X, based on BIP 91.

This lowers the necessary miner approval rate from 95% to 80% and would then execute a hard fork in 6 months to raise the bitcoin block size from 1 MB to 2 MB. In this proposal, they not only lowered the hurdle to introduce Segwit, but also warranted wider support as it incorporates a hard fork with the block size expansion claimed by the traditional Bitcoin Unlimited school.

As of May 25, 2017, 58 companies including major mining pools and exchanges from 22 countries in the world have agreed. BIP 91 was locked in on July 21 and officially activated on July 23, 2017. The 58 firms in 22 countries that have agreed to this proposal account for about 80% of the transaction volume of the whole of bitcoin, so it is highly likely that the SegWit 2X hard fork will be executed. Still, core developers have expressed their opposition to SegWit 2X, and the possibility of further division of bitcoins is possible.

 

User Measures?(Japan)

bitFlyer announced that it will stop bitcoin’s on-chain transactions (yen ⇔ BTC) from July 31 to August 1, and from July 23 to August 1 in other major exchanges.
This is a preemptive measure against “Replay Attack” that could occur at the hard fork.

Replay attacks are when two coins are sent at the same time if remittance processing of one coin is done immediately after a hard fork occurs. If a fork occurs, the software side needs to respond in a way that can remmit and receive the two branched coins separately. If the remittance destination can not identify the two coins, there is a possibility that the transferred coins can not be withdrawn and may even be annihilated. Halting transactions on exchanges is a response to that risk. Although the risk of hard fork and unintended branching has been greatly reduced by activating Segwit 2 X, it would be safer to refrain from transferring bitcoins before August 1.

bitFlyer※=A major Japanese cryptocurrency infomation and trading site(https://bitflyer.jp/en/?top_link)

<Reference> What is Bitcoin Cash?

Bitcoin Cash (BCC) is led by ViaBTC, a leading mining pool in China. It is a project to create new Bitcoins from the hard fork. They plan to execute a hard fork to raise the block size to 8 MB at 21:20 on August 1, 2017. If successful, a yet new encryption currency called Bitcoin Cash will be born.

It can be said that this is the birth of a new altcoin rather than a fork, and its influence on the current bitcoin is inconsequential.