You may have heard about an upcoming “split” in bitcoin known as SegWit2x.
It was canceled a few days ago, with barely a week’s notice.
It’s important to understand these events, so I’m going to tell you a little bit about how they work and what they mean.
Technically, these “split” events are called “hard forks.” They happen when a group of bitcoin miners decides it doesn’t like the rules and is splitting off to make its own version.
A new separate blockchain is created. Everyone who was previously holding bitcoin is entitled to the same number of each coin, but may have to go through additional steps to access it.
A hard fork happened somewhat recently with Bitcoin Cash (or “Bcash”). A group of miners with a sizable share of bitcoin mining power wanted a less decentralized, more payment-focused coin. The fork that resulted had no noticeable effect on the price of bitcoin, but bitcoin owners got free Bcash, which they could sell for more bitcoin or hold on to as a hedge.
Why SegWit2x’s Failure Is Good for Bitcoin
In this most recent case, the newly forked coin would have been SegWit2x (S2X).
Some 80% of miners were signaling support for this fork at one point. But the original bitcoin community strongly opposed SegWit2x.
Importantly, the founding core development team of bitcoin was strongly against this change. It would have meant moving away from Bitcoin Core, the Bitcoin Foundation’s “core” software. So the people who’ve always run bitcoin’s core code (very well) would no longer be in a position of influence.
It could happen. The market could decide it doesn’t like Bitcoin Core’s code anymore and switch to something else. But it hasn’t happened yet, because the community still supports Bitcoin Core developers’ vision for bitcoin, and they put out quality code.
Only miners and exchanges seemed to want this fork. On Twitter, users were adding #NO2X tags to their profiles in droves.
People were outraged over SegWit2x, calling it a hostile attack – which, in some ways, it was.
For one, it didn’t have “replay protection.” In other words, S2X coins could have possibly gotten mixed up with bitcoin’s blockchain and caused some issues.
SegWit2x opponents said the code was rushed and not well-tested… and that it would result in the blockchain becoming unsustainably large. Only mega-computers would be able to mine it or run a “node.”
So it was really a battle between two sides. Miners and exchanges supported SegWit2x, while Bitcoin Core and the larger community opposed it.
Bitcoin Core and the original community won.
This is a very good thing for bitcoin. It doesn’t mean the forkers won’t try again, but it shows that the community has a big say in the direction of bitcoin.
Miners thought they could pull SegWit2x off. They were extremely confident. They had 85% of the mining power, they would be the only business in town, etc.
But users successfully rejected their “upgrade.” That’s my interpretation, anyway.
There’s always been a debate in bitcoin about who holds the real power. Is it miners or users? We now have a hint that users may have the ultimate edge.
The fork battles are far from over. I’m sure we’ll see many more of them in the future as various sides pursue their own best interests and try to control the fate of this emerging global investment.
But they didn’t succeed this time. Bitcoin is still run by the people who have maintained it since its earliest days… those who are part of Bitcoin Core.
And, importantly, we finally have clarity on this fork, which was a major cloud on the horizon from my view. SegWit2x could have been messy, and it tarnished the brand.
This is an important time for bitcoin (and all cryptocurrencies), with CME Group Inc. (Nasdaq: CME) investment futures coming in 2017 and exchange traded funds likely to follow.
Now we have more certainty that bitcoin will remain in secure and experienced hands.
Co-Founder, Early Investing