On Wednesday morning, the Bitcoin Core development team released a rare statement concerning the safety of Bitcoin users’ coins during the potential hard fork for Segwit2x, which is scheduled to occur in November.
The developers state that the hard fork is not supported by the majority of the Bitcoin users and developers, which makes it contentious, and therefore puts many user's bitcoins at risk if they store them with the wrong services. “By adopting this hard fork,” the announcement states, “we believe the supporters of this agreement are shifting their users to an alternative currency (an altcoin) which is incompatible with Bitcoin.”
Bitcoin’s developers strongly advise against storing coins on services such as Coinbase, Bitpay and Xapo since the coins may be renamed to something else or replaced with a new altcoin that is not bitcoin. Currently, 43 services intend to leave bitcoin for the new blockchain (the complete list can be obtained here).
“By adopting this hard fork, we believe the supporters of this agreement are shifting their users to an alternative currency which is incompatible with Bitcoin."
— Bitcoin Core development team
The major difference in the Segwit2x hard fork that sets it apart from many previous hard forks — such as the one for Bitcoin Cash in August — is that many major bitcoin infrastructure providers including wallets and exchanges support this fork.
A majority of bitcoin mining hashrate is in support of the fork as well, which at the very least will slow down the production of bitcoin’s blocks as the miners fork the blockchain and depart bitcoin in favor of mining the new chain. The rate that block production will slow down to is unknown, however, it is currently estimated to drop to as low as 15 percent of its current speed. This will lead to slower transactions and higher fees until the matter is resolved.
A few other problems are expected to occur as well, such as the possibility of transactions on one chain showing up on the other chain. The developer team advises users to refrain from using bitcoin until the fork is completed. Bitcoin.org states that “As the hard fork has very little replay protection, most transactions you perform on the Bitcoin network will also be valid on the hard fork network... some services may continue to present and name the altcoin created by this contentious hard fork as Bitcoin.”
The fork was originally planned as an upgrade that does not cause chain split resulting in two bitcoins. The agreement spearheaded by Barry Silbert’s Digital Currency Group in May — referred to as the New York Agreement (NYA) — had released a statement declaring that 58 signatories were agreed on a method to end Bitcoin’s scaling debate. This diverse group of businesses and miners agreed to pass Segwit, but also required the addition of a two-megabyte upgrade to Bitcoin’s base block size. The Bitcoin network has been successfully upgraded to deploy Segwit, but the second part of the agreement has been the source of heated debate online. The number of signatories has reduced to 43 since May, due to this disagreement.
The problems began when developers from the Bitcoin Core team refused to attend the NYA meeting in the first place. The agreement to change the code was made without any of the developers to assist planning, or even say if it could be done without a major network disruption. The developers stated at the time that the developers behind bitcoin deliberately remain a decentralized group which answers to no one, and therefore no one could speak on behalf of the group. Its many members have also adamantly rejected a change to bitcoin’s block size outside of the one that was already included in Segwit.
The Segwit2x agreement, would replace the reference client of Bitcoin, stored in Github’s /bitcoin directory, with the one in the /BTC1 directory under the control of Jeff Garzik. Current developers would no longer have any administration rights in the new folder. For this reason, the Segwit2x plan has been called a move to “fire the core devs” throughout the scaling debate.
In order to determine how much the community values the original bitcoin against the new Segwit2x coins, Bitfinex (the leading bitcoin exchange by USD volume), added a pair of futures tokens for trading last Thursday that represent a futures market for both coins after the Segwit2x fork.
Called chain split tokens, it was the second time the exchange tried the tactic, which effectively gives the divided community a way to ‘vote’ on which fork will be more popular prior to the split. Before trading began, the price was set at $1,500 for the BTC1 token, (representing Bitcoin) and $2,999 for the BTC2 token (representing Segwit2X’s coin). To trade them, registered users can deposit a bitcoin at Bitfinex and receive one of each token in return.
Within an hour of the announcement, the price flipped heavily in BTC1’s favor, jumping to a value ten times that of BTC2, roughly $4,000 for BTC1 versus $400 for BTC2. It has oscillated since, with BTC2 reaching as large as one third the price of BTC1, but at the time of writing the cost of BTC2 is much closer to one fifth the price of BTC1. The price ratio has been comparable to the ratio of Bitcoin vs Bitcoin Cash.
The day following the listing of the two tokens, Bitfinex publicized detailed plans on how it would treat the hard fork in November for the Segwit2X split. The new chain will be given the ticker symbol B2X, and bitcoin would remain bitcoin for trading.
Coinbase, a signatory of the NYA, announced a similar plan, but did not name the new altcoin token. The company did acknowledge that the fork would result in two separate blockchains but delayed the decision until after the split to pick which coin will get the ticker symbol BTC on their two exchanges. According to the statement, “Customers with bitcoin balances stored on Coinbase at the time of the fork will have access to bitcoin on both blockchains.”
By this time, several companies had started to back out of the NYA, starting with Germany’s Bitwala on August 22nd. The company left an in-depth explanation on their blog detailing how they “would not actively fork away from what we view as ‘bitcoin’, which is the chain that is supported by the current Core dev team.” Other companies have followed suit since then. Top-5 mining pool F2Pool, the German Vaultoro, Argentina’s Wayniloans, the UAE’s BitOasis, the UK’s Cryptofacilities, and Chile’s largest exchange SurBTC, which was the most recent defection.
Meanwhile, a few NYA companies have had the opposite reaction, entrenching themselves deeper by stating that their companies will follow the largest amount of hashrate, and call that chain the official Bitcoin, no matter what the Core development team says. Merchant processing and debit card company Bitpay, and Bitcoin wallet and debit card provider Xapo are both among this group which could cause considerable disruption to the network on the day of the fork due to their large volume of transactions.
Assuming the Segwit2X fork continues as planned, all bitcoin holders will receive an equal amount of B2X coins on the fork date. However, the potential for serious turmoil could scare off many users and businesses from the bitcoin ecosystem.