While some are firm on their $6000 end-of-year projection for bitcoin, one thing is for sure over the next few months: the HODLing will be tough.
As mainstream adoption rolls up for bitcoin, concerns about its scalability became a glaring, immediate topic of dispute.
This year, processing speed for bitcoin transactions reached a record-breaking low: instead of the usual 10-minute average, transactions got stuck in limbo for as long as 10 hours, with some even reporting a 30-hour wait. In May, 200,000 transactions remained at a standstill as congestion brought the bitcoin blockchain to its knees.
The original 1Mb block size limit was put in place as a defensive measure against DoS (denial of service) attacks, as any transaction over that threshold is rejected by the system. But with the influx of transactions, bitcoin struggled to keep up—fees started to go up, and basically everyone was pissed. This ultimately forced developers to circle back not only to the block size argument but to another issue they’ve been debating over a year before: the malleability bug.
The malleability bug is when a transaction ID is mutated, whether intentional (by an attacker) or accidental (by a wallet simply trying to properly format it), and results in confusion in bookkeeping. It can definitely mess up exchanges. And if it happens on a large scale, it can jam up the blockchain in what is referred to as a “massive distributed denial of service (DDoS) attack.” In this event, transactions do not get confirmed and this subsequently affects the bitcoin market.
To solve these problems, two solutions were proposed:
1. Segregated Witness (SegWit), a software upgrade or what is referred to in the blockchain community as a soft fork, would remove the signature data from bitcoin transactions to free up space on the chain.
2. Bitcoin Unlimited proposed to retain power to miners by allowing them to vote on when block sizes are increased, and by how much. It also allowed them control on transaction fees.
And with these two options laid out to the public, a nerdy drama ensued.
Bitcoin Core’s developers themselves refused to support SegWit. Bitcoin Core developer Luke Dashjr believes the hard fork will fail. This caused some companies to follow suit in the boycott.
Bitmain, one of the biggest bitcoin miners, was one of the staunch opponents of SegWit. Some argue, however, that their reluctance to support SegWit comes from an intention to exploit an optimization mechanism developed to mine more bitcoins for less power, which could yield an additional 30% increase in profit for the company. Their boosting mechanism is said to be incompatible with SegWit.
In what is now called the New York Agreement (NYA), a compromise between SegWit and Bitcoin Unlimited was brokered to appease the block size war. As agreed in the NYA, the initial phase of SegWit was triggered in August, and a second phase is set to activate 12,960 blocks after. The first phase, as expected, was met with resistance and resulted in the birth of Bitcoin Cash, where those who rejected Segwit can run an “alternate universe” where Segwit never happened. The second phase, referred to as SegWit2x, will double the block size limit from its current 1Mb constraint to 2Mb.
Segwit2x is scheduled to happen in the middle of next month. And this is where it could get ugly.
SegWit2x can only activate successfully on one condition: that 95% of miners support it in a duration of two weeks before the deadline. Otherwise, another split may be underway.
As of last check, SegWit has amassed 95.1% support from miners. But with over a month from the deadline, several things could still change this. As we’ve seen in blockchain history, forks and significant changes can cause prices to fluctuate dramatically. Talks of another coin being born of this fuss have also been circulating.
Despite this, industry experts remain positive in their $6,000 end-of-year forecast for bitcoin. But they do reiterate that it’s going to be a bumpy ride. Until things simmer down, the HODLing will be quite tough.