Confusion & Questions
There is a lot of confusion on “what is going to happen on August 1st?”. Just to clarify, it is not yet confirmed that Bitcoin will split in two on 1st August. There are series of events that will finally decide the fork.
We’ll try to explain the whole thing in a very simple way. It might be a long explanation but will try to keep it as simple as possible. Let’s start.
Bitcoin network is designed in such a way that it caps the amount of information on its network, meaning the information in each block in blockchain. This was proposed initially to protect it from cyber attacks. Hence, there is a restricted amount of transactions it can process which we call as Block Size Limit.
Note: For those who don’t understand, what block size and blockchain is, you can think it as an infinitely long library with infinite number of fixed size shelves (that can hold say 50 books) arranged in a row. Here,
Each Shelf = Block
Shelf Size i.e. 50 books = Block Size
Shelves arranged in a row = Blockchain, I hope this clarifies the concept of Blockchain.
The Issue with Bitcoin
Now, as Bitcoin is gaining more and more popularity, the number of transaction are increasing at a very high rate which results in high transaction time and processing fees. Hence, the efficiency of system has reduced.
To address this issue, a lot of proposals were given (Bitcoin Improvement Proposals – BIP) by two different groups:
- Group of Miners – Miners are the one who deploy costly equipment or super computers to verify transactions. They form the base infrastructure of bitcoin network. As per miners, the block size limit should be increased and this will reduce the network congestion.
- Core Developers – The core developers aim at providing error-free bitcoin network. They propose to move out some of the data from block. As per them, this change will not only reduce the network congestion but will also allow a new feature in bitcoin i.e. smart contracts (meaning, apps or contracts that can be built over bitcoin). This proposal is called SegWit.
Now, both the groups have their own motives to achieve like core developers want to keep network secure from cyber attacks and also maintain the basic features of Bitcoin like 1 MB block size. On the other hand, miners have invested millions of dollars in the mining equipment and moving data off the blockchain (as suggested by core developers ) effectively diminishes the influence of miners.
Hence, Segwit (a better proposal – what I think) is getting a lot of resistance from miners, majorly from BITMAIN which has around 20%-30% of mining share in bitcoin network.
With all these discussion and proposal, both the groups finally agreed on a mutual decision which is called SegWit2x, which implements SegWit and increase the block size limit form 1 MB to 2 MB.
The new software (Segwit2x) will be released to miners on 21st July and around 80–85% miners are willing to run the same.
From , 21st July to 31st July, the bitcoin community will monitor how many miners deploy SegWit2x. If more than 80% deploy it consistently, then whole community will accept the same and the split of bitcoin will be avoided, at least for some time.
BUT, if a majority do not deploy the software by 31st July then a User Activated Soft Fork will happen. (For the readers who don’t understand soft fork – Soft fork is like adding a new feature to say, whatsapp. For Example – Adding a video calling feature in whatsapp)
On 1st August – If the above happens then, UASF will be deployed and developers/supporters will start checking if the bitcoin transactions are compliant with SegWit. If this works, then two versions of bitcoin’s blockchain could come into existence.
This will lead to massive volatility in the price.
We hope this answers most of the queries related to 1st August 2017 soft fork. In case, you have any other queries, then please feel free to leave a comment.
This article is taken from an informational answer on quora by Pranshu Agarwal. Thanks Pranshu for allowing us to educate more people on this topic.
You can follow Pranshu or read more about his other contributions to cryptocurrency on CoincapIndia He also runs an Ethereum Mining Group