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Fundament of the week – SegWit2x

Although bitcoin still remains the most important cryptocurrency today, it is far from perfect. Among the biggest challenges it faces is scalability. Some blocks in the BTC blockchain are limited to 1 MB, having only a limited number of transactions that the network can process.

The crypto market is still growing, and, contrary to popular belief, this success (of Bitcoin in particular) can hamper the progress of virtual currencies. This can lead to an increase in transaction fees and processing times.

Hard fork and soft fork

To understand the SegWit2x segment, we first need to know the difference between hard and soft fork that is related to blockchain. Hard fork refers to reworking the rules governing the blockchain. This is a major design shift, so new blocks are not considered valid by old networking software.

The result of a hard fork is that the affected blockchain is permanently divided into two. Hard forks can even split a network into two if they are not fully adopted. All you need to have is the right amount of cooperation between participants. The proposed hard fork can still split the blockchain. This was the case when Ethereum was divided as a result of the hacking of the DAO.

Soft forks, on the other hand, are a shift in network regulations creating blocks and as such are recognized by previous software. In this sense, they are poorly compatible.

SegWit as the background of the SegWit2x segment

Before the SegWit2x segment design came along, there was SegWit. It was the first soft fork designed to address the issue of Bitcoin scalability. It was designed in 2015 by Pieter Wuille.

The segregated witness mechanism was designed to allow separation between signatures and other transaction data. As the result, the data would be stored within various blocks. The goal of the SegWit segment was to increase the total transaction capacity through a non-splitting software mechanism.

Ever since the SegWit design was conceived, further discussions about the branching of the BTC network have taken place. For example, the hard fork, which took place in August 2017, led to the creation of Bitcoin Cash. As a result, the block size increased eightfold without having to use the SegWit protocol. SegWit was finally activated on August 24, 2017, although many BTC network transactions did not take advantage of this innovation at the time.

SegWit2x as a hard fork design

While SegWit was a soft fork design, SegWit2x was a hard fork design. The launch of SegWit in August 2017, was actually only the first of two-phases referred to as the "New York Agreement".

The second phase is the so-called Segwit2x protocol, which would increase blocking from 1 MB to 2 MB. The designers of the SegWit2x segment hoped that the increase in blocking would be able to mitigate the increase in transaction fees. These grow as a result of users paying miners for transactions. On the other hand, increasing the block size would also put more burden on node operators, who would then be required to store additional data.

SegWit2x segment implementation would lead to a change in the rules governing Bitcoin. On the other hand, it would be different from the forks that led to Bitcoin Cash and Bitcoin Gold. In these cases, users expected that the transactions themselves would not be dramatically affected. Rather, users who already owned Bitcoin would simply be provided with a new cryptocurrency during an ongoing fork, and the two networks would continue on different routes.

Like these previous forks, SegWit2x was an alternative software protocol that would result in a hard fork and in an attempt to increase the block size. However, unlike previous forks, SegWit2x tried to keep all existing BTC users on one blockchain.

Pros and cons

The miners and startups who led the adoption of the SegWit2x segment tended to be the loudest supporters of the new protocol. They have often argued that Bitcoin's inactivity is causing competing cryptocurrencies to overtake Bitcoin’s place and that existing improvements are not sufficient to alleviate the problem.

On the other hand, developers and node operators have often been not in favor of these changes. They suggested that Bitcoin could serve the purpose of storing the value rather than playing the role of the payment system and that the riskiness of the new protocol outweighs its potential benefits. Some also thought that miners and businesses would benefit disproportionately from the protocol.

SegWit2x was very controversial, partly due to its status as a hard fork and the developers were unable to reach a consensus on its adoption. The hard fork was originally scheduled for November 16, 2017. However, the leaders of the SegWit2x movement suspended it on November 8, 2017, due to ongoing disagreements and a lack of consensus among the participants.

At the end of 2017, another proposed fork called SegWit2x was announced, however, it seems that it has nothing to do with the original segment except for the name.

Jakub is a crypto trader and founder of Trader 2.0 project, which helps hundreds of traders from central Europe to understand cryptocurrency trading and its challenges. Jakub not o...


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