A Brief Look at SegWit and the Possible Split of BitcoinDate Written: July 28 2017 Written By: George Miller
All of Bitcoin’s transactions (ever) are stored in a ledger known as the Blockchain. The transactional data is stored in units called “blocks” that are organized in a linear fashion, a “chain”. Overtime, the volume of transactions in the Bitcoin network has increased considerably. Accordingly, the number of transactions in each block has also seen a large increase. As a result of this, the Bitcoin network itself has slowed down significantly. A single Bitcoin confirmation may take as long as 20-50 minutes.
This is a problem of scalability. The solution to this problem is to increase the block size limit, which, up until this point, has been 1mb. With the 1mb limit in place, only 4-7 transactions per second are possible on the Bitcoin network. By comparison, VISA handles roughly 2000 transactions in the same amount of time, and Paypal handles 115.
Increasing the block size limit would allow for the transactions to flow more smoothly and efficiently throughout the network, which is necessary for the continued growth of Bitcoin. To upgrade the network, a software upgrade known as BIP148 (Bitcoin Improvement Proposal 148) has been proposed. August 1 is the date that will determine whether or not the SegWit (Segregated Witness) soft fork will be activated to fix a myriad of technical issues with Bitcoin, including the low block size limit.
The people responsible for the activation of SegWit throught the implementation of the official software upgrade will be Bitcoin miners, who have been debating over the past several months over whether or not the soft fork is a good idea. On August 1, Bitcoin miners in favor of SegWit will attempt to force the computers connected to the Bitcoin network (nodes) to install the upgrade. This process is known as a “soft fork”. In order for it to go through, a clear majority of the miners must support the upgrade.
If the upgrade is installed, the block limit size will increase to 8mb. Soft forks are “backward compatible”; what that means in this scenario is that the Bitcoin nodes will accept the new blocks as valid, and some of the old blocks and transactions will be made invalid, although the majority of them will remain valid. Basically, Bitcoin will remain as it is with a few technical upgrades.
If a majority of miners do not support the upgrade, the blockchain will split into two pieces, thus forming two forms Bitcoin. This scenario is called a “hard fork”. One of these forms will follow the new rules implemented by the upgrade, and the other form will follow the old rule. This is the same kind of event that formed the split between Ethereum and Ethereum Classic. If the fork happens, the “new” Bitcoin will be Bitcoin Cash (BCC).
At this point in time, it seems as though the hard fork is the most likely course of action. Many miners and members of the Bitcoin community have spoken out against the soft fork as a temporary fix at best. The future isn’t exactly clear at the moment, but what does seem to be clear is that Bitcoin is here to stay–there have been many times in the past that Bitcoin has been declared “dead”. Although the fork could lead to fluctuations in the market, the long view is that the new network (or networks) that will be born from the fork will be more productive, and ultimately provide more possibility for the expansion of Bitcoin and crypto as a whole.