It is with some lament that I write this. If everyone agreed on a path forward, then there would be no need for this post, but here we are. There is a strong likelihood that we will need to know what will happen if Bitcoin forks (again). There is a chance that the protocol of Bitcoin will fork, which will cause a chain fork as well. (I discussed hard forks & soft forks from my perspective in a previous post.)
Some Bitcoin miners are signaling that they would accept one of two competing Bitcoin protocol changes: one protocol is Bitcoin Unlimited (BU), which would increase the maximum transactions that Bitcoin can process by 100%. The other protocol, called Segregated Witness (SegWit), is expected to increase this maximum by 70%. As of this writing, 35.9% of blocks are signaling for Bitcoin Unlimited while 26.8% are signaling for SegWit.
Bitcoin Unlimited vs. SegWit: Abstractly, what is happening?
Let’s make a hypothetical situation where the proportion of Bitcoin Unlimited to SegWit votes stays the same, but is extrapolated out so that ALL Bitcoin miners MUST choose either Bitcoin Unlimited or SegWit. That would mean around 55% of miners would be supporting Bitcoin Unlimited and 45% of miners would be supporting SegWit. (There is an incentive to go with the “winning” majority chain, so this division of hashing power could be even more severe at the time of a hard fork.)
If Bitcoin Unlimited activated and a block over 1MB was mined, then the SegWit part of the network would reject this block and build off the previous block. With a drastic drop in hashing power but no change in the difficulty target, it would take the Bitcoin network longer to find the winning solution that confirms a new block to the blockchain. With our hypothetical numbers, blocks for Bitcoin Unlimited would come out approximately every 18.2 minutes and SegWit blocks would come out approximately every 22.2 minutes. Any transaction capacity increase promised by Bitcoin Unlimited and SegWit would be delayed until the difficulty target adjustment shakes out. As more blocks were found, the difficulty of each chain would adjust and after about a month (a little longer for SegWit), the 10-minute block time target would be restored.
How would this hard fork affect Bitcoin users?
A Bitcoin user with coins before the hard fork would then be considered to have a positive balance on both ledgers/blockchains after the hard fork. (The Ethereum blockchain forked after last year’s DAO debacle, yielding ETH tokens and ETC tokens (Ethereum Classic) for users who owned ETH before the fork.) But without taking care, a user could intend to spend coins on one chain and unintentionally spend on both chains; this is known as a replay attack, though it’s really not an attack if it’s done unintentionally. Maybe that should be called a replay error so as to not be confused with an intentional replay attack meant to defraud.
How does one guard against a replay attack after a hard fork?
One way to guard against a replay attack after a Bitcoin hard fork is to transfer your Bitcoin to different, fresh addresses so that—ideally—one transaction would confirm on the Bitcoin Unlimited chain, and another transaction would confirm on the SegWit chain. (It is likely that simple tools would be released relatively shortly after the hard fork to help users split out their Bitcoin onto both blockchains.)
If you don’t need to use your coins right away, waiting—maybe even a month—for network congestion to die down might be a good idea. Of course, there is no telling what the market will do in this event or how the values of each cryptocoin would be affected. In the absence of said tools, you could notice that one chain accepts lower fees than the other and send a low fee transaction hoping it confirms in one chain and not the other, but this is risky. (This would also require two different programs running, maybe on separate computers.) Also, some exchanges could accept pre-fork coins and split them for you, but you should check with the terms of your cryptocurrency exchange before attempting anything like this.
What will happen to your Bitcoin crypto wealth?
It’s not possible to know what markets will do during or after a cryptocoin hard fork. After a hard fork, if a user can sell coins from the chain they don’t want and buy on the chain they do want, it’s possible to end up with more units than you started with. What the value of that will be in your local currency… nobody can know. Hedge appropriately. Personally, I’ll be happy just to preserve my wealth, even if I miss out on any possible gain.
The politics of the Bitcoin block size debate
It is a shame to use the adjective political to describe Bitcoin, but that’s an adjective that applies. There is debate as to whether the Bitcoin Unlimited chain will be called Bitcoin or something else if it becomes the majority chain—that is, the chain than gets the most hashing power. Most exchanges have announced that they will list a Bitcoin Unlimited branch as BTU (or XBU); however, ShapeShift.io CEO Erik Voorhees has announced that he will use “Bitcoin” and “BTC” (or “XBT”) to describe the majority chain. This division will add to confusion during and after a hard fork. People are taking strong positions on what is called Bitcoin; the actual protocol won’t care what you call it.
For the record, myself (personally) and @ShapeShift_io would use the BTC/Bitcoin name for whichever chain unambiguously “won,” over time.
— Erik Voorhees (@ErikVoorhees) March 17, 2017
Would a Bitcoin hard fork cause a DDoS 51% attack?
In the event of a hard fork on the Bitcoin blockchain, the hashing power of each chain will decrease. This would make it more possible for one side to perform a 51% attack on the other. Economic incentives make a 51% attack unlikely, but with a lower network hashrate, a 51% attack does statistically become more likely nonetheless. There has been discussion among the SegWit team to change the Bitcoin hashing algorithm to help mitigate this “threat”; such a switch would be difficult and result in Bitcoin ASICS being useless on any chain that changes the hashing algorithm. (This did not happen with the only precedent we have, the Ethereum hard fork.)
Changing Bitcoin’s proof-of-work to prevent miners from mining is the most absurd and reckless thing I’ve heard in the scaling debate.
— Erik Voorhees (@ErikVoorhees) March 20, 2017
Am I misunderstanding? If a Bitcoin w/ 2MB blocks is “an altcoin” because different rules, then is not a dif POW chain also an altcoin?
— Erik Voorhees (@ErikVoorhees) March 20, 2017
Short of a 51% attack, one side could mine empty blocks on the other chain. This would place more stress on a network that is already stressed. Since the environment is so hostile, this may happen.
Satoshi’s vision: it wasn’t supposed to be this way
The original vision of Bitcoin assumed that all miners would go with the majority chain. That would be the most secure chain, and the network effects would be greater for that chain. However, we now know that this probably won’t be the case. People will split off for different reasons. Ethereum was the first example, and it won’t be the last.
Related listening: We’ve got a special bonus interview with Bitcoin Angel Investor and Bitcoin.com CEO Roger Ver! Roger talks with us about how the current BTC block size limit is throttling the BTC network, why Blockstream/Bitcoin Core’s SegWit isn’t a good solution in his mind, and how Bitcoin Unlimited could be poised to increase the block size and allow the Bitcoin network to scale.
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Did you catch this week’s Neocash Radio podcast yet?!
“Ep198: Are Dash and Ethereum Making Bitcoin Irrelevant?“
(Wednesday, March 15th, 2017)