A wrap-up of the biggest news in cryptocurrency for the week
SegWit Adds to the BTC Civil War
Last week we talked a little bit about Bitcoin Unlimited and its attempt to secede from the bitcoin network by creating something akin to a hostile takeover of the bitcoin blockchain. Since bitcoin is decentralized and no central organization can truly control bitcoin (most major updates are made via consensus of Core developers), it’s not a hostile takeover in the classic, corporate sense, but it is a revolutionary effort that has split fans, users and experts alike right down the middle.
Recap of BU
Bitcoin Unlimited proposed to solve the problem of ever-slowing transaction times and increasing transaction fees by allowing for an increase in bitcoin block size. If miners could decide the size of the block they wanted to mine and add to the blockchain, they could theoretically collect more transaction fees while simultaneously helping transactions get pushed through more quickly. Critics are quick to point out that this would make the size of the blockchain even more unwieldy than its current size of about 120 GB. Having the bandwidth necessary to download and update an even larger blockchain would further remove the average person’s ability to operate a full bitcoin node and thus maintain a Core client-based wallet.
The Second Fork in the Road
So, what will bitcoin users be stuck with: high fees and sluggish transactions, or having to run and maintain a program that will likely be far larger than bitcoin’s already-110 GB blockchain? Enter Segregated Witness, or SegWit, a coding tweak first proposed by bitcoin developer Pieter Wuille in 2011.
With a doctorate in computer science from the University of Leuven, Wuille has been part of the bitcoin core development team for longer than most other developers, and his solution is currently being highly considered as a way to bridge the gap between bitcoin Core and Unlimited camps. (The “Core” camp preferring to leave the block size at 1 MB for the moment and the “Unlimited” camp preferring to dynamically increase block sizes.)
The term “Segregated Witness” refers to the idea that it is possible to remove (or segregate) certain identification data from bitcoin transactions in order to make them smaller in size, which would allow for more transactions to be squeezed into a single 1 MB block.
The bitcoin network could still function as normal if data related to signatures (“witness data”) was removed from bitcoin transactions. Transaction IDs, which are dauntingly long strings of characters, would be shortened, each transaction would therefore consist of less total data, and the need for bigger block sizes would be relieved.
Much like Bitcoin Unlimited, proponents of SegWit are attempting to implement their coding changes via a consensus-based soft fork, meaning nobody would have to upgrade their client to be SegWit compatible if they didn’t want to, and their bitcoins would still be safe and compatible with nodes running the SegWit implementation. In order for SegWit to be activated, 95% of miners must be using the SegWit version of the bitcoin client, which would signal the network to incorporate the change into the bitcoin protocol for good.
The Limitation of Bitcoin Unlimited
SegWit poses two problems for Bitcoin Unlimited supporters. First, it draws away potential miner support that BU needs to reach their own activation threshold. As this “third party candidate” enters the ring and gains increasing favorability, it is near certainly spelling the doom of BU’s activation hopes by splitting up the miners into a third camp. In this way, you can imagine SegWit to be the Ralph Nader, Ron Paul or even Bernie Sanders of bitcoin political camps. With over 30% of the miner vote now signaling support for SegWit, this week it passed Bitcoin Unlimited in terms of miner popularity for the first time, effectively removing BU as a serious contender in the race to be the savior of bitcoin. On top of that, SegWit has already been named as the culprit behind a crash of BU-running servers, most likely due to software incompatibility issues on the part of BU. Obviously, Roger Ver, early bitcoin adopter and lead investor behind the highly-publicized and contentious push for BU, can’t be having a good week. Of course, SegWit is not without its own detractors, though they may have come too little and too late to derail SegWit’s impact on BU’s chances of success.
The Resurgence of Litecoin
Last but not least regarding SegWit is the fact that the world’s second oldest cryptocurrency, Litecoin (LTC), is on the verge of signaling SegWit activation in their own network, spurring a boost in new mining software aimed to take advantage of the likely event of its activation. Litecoin has always been touted as the more environmentally-friendly version of bitcoin since not nearly as much computing power is necessary to keep its network running and blockchain secured. This has pushed the price of LTC to fresh highs on speculation that lower fees and faster transaction times provided by SegWit may give it an edge over bitcoin in terms of future user adoption. Still, if anything’s certain, it’s that the future of cryptocurrency is always uncertain. A mantra heeded to potential speculators hoping to capitalize one way or another on last week’s events could best be put in terms of an ancient axiom: “change is the only constant.”