Segwit2x, 'The New York Agreement'

On May 23rd the Digital Currency Group released a statement declaring that 58 signatories had agreed on a way to end Bitcoin’s ‘scaling debate’.

Known as the New York Agreement (NYA) it was said to be a compromise between the two sides of the debate — those who want to achieve scaling through Segregated Witness (Segwit) and those who prefer to scale by increasing the block size. It consists of two sequential phases — to activate Segwit using BIP 91 (making it compatible with the UASF) and then to hard fork the base block size to 2 MB ninety days later. 

Segwit2x is the name given to the project and the code itself is held in the ‘btc1’ repository. All development is being overseen by Jeff Garzik.

With phase one underway and with Segwit ‘lock-in’ looking inevitable another group, led by Bitcoin mining pool ViaBTC, then announced that they would take the August 1st UASF deadline and use it as the launch date for Bitcoin Cash, their own ‘big block’ hard fork. 

So with Segwit now locked-in and a ‘big block’ fork of Bitcoin already live, many are left wondering if the second phase of the NYA is still relevant. Despite doubt over the continued validity of the project Jean-Pierre Rupp has recently added an announcement to the btc1 repository stating firm intention to press on with the hard fork.

Governance by Industry

Bitcoin’s very nature means that governance is distributed and formed by consensus as opposed to a more traditional top-down hierarchy in which a small number of people hold positions of central authority.

The now inevitable activation of Segwit is a success claimed by both UASF and Segwit2x supporters. The pressure to activate Segwit was due to the UASF (BIP 148) movement, who’s August 1st deadline led to the activation date of Segwit2x being brought forward to ensure compatibility. In that sense the community seem to have had the upper hand.

Despite the recent arrival of Bitcoin Cash, Segwit2x supporters are keen to point to the number of businesses that signed the NYA by way of showing support for the continuation of phase two of the plan.

The NYA highlights that between them the signatories represent:

  • 58 companies located in 22 countries

  • 83.28% of hashing power

  • 5.1 billion USD monthly on chain transaction volume

  • 20.5 million bitcoin wallets

Every business has a decision maker or owner behind it and so the above can be distilled into a small group of individuals who consider themselves representatives of the wider community. The idea of companies notifying the community of their intent to use a hard fork to change the Bitcoin protocol isn’t new — in 2015 eight businesses signed an agreement to support ‘Bitcoin XT’. Again, the announcement was not a proposal being published for review but a statement of intent.

-  Bitcoin XT Industry Letter, August 2015

December 2015 passed without a hard fork, perhaps showing that industry support doesn’t always equate to economic or community support.

Normally when a group has an idea that they think will be of benefit to the community a Bitcoin Improvement Proposal (BIP) is made and submitted for open review and feedback. The guidelines for this tried-and-tested approach to protocol change are quite clear in purpose:

It is the fact that the NYA led to the issuing of a statement of intent and not the publication of a proposal that presents the strongest case for its opposition. It raises concerns over what precedent will be set if the group continues with their planned hard fork and what this means for the properties of Bitcoin that have made it ‘digital gold’ in the eyes of many investors — namely its decentralised and trust-less nature. If protocol changes can be made by a relatively small number of individuals it brings into question what core consensus rules may be altered to suit the needs of businesses in the future.

Risk for what reward?

With the release of Bitcoin Cash earlier this month the market reaction was ultimately positive as Bitcoin’s price rose significantly in the days that followed. Similarly the price of Bitcoin Cash itself seems to be holding at a higher level than many anticipated. As far as the market has indicated it seems that a resolution to the scaling debate has already been reached.

For all of the haste involved in getting their solution ready for August 1st, the team behind Bitcoin Cash listened to community feedback and implemented strong two-way replay protection, greatly reducing the potential for disruption for existing Bitcoin users and Bitcoin Cash supporters alike.

There are no such safeguards in place with btc1 as neither two-way nor one-way replay protection have been implemented. Comments on the btc1 repository suggest that the onus is on the existing chain to implement its own replay protection, expecting Core contributors to perform work to circumvent a problem they are not the cause of. The Segwit2x team seem opposed to the idea of easing disruption for those that do not want to follow their hard fork. This lack of concern for existing clients, exchanges and wallet providers is an aggressive and confident stance for a team developing an incompatible client to take.

The lack of any future Segwit2x compatibility being added to the Core client seems highly unlikely as the main contributors to the Core reference client have all publicly stated their opposition to the proposal. Furthermore, changes submitted by Matt Corallo that make the next release of the Core client disconnect from btc1 compatible nodes before the fork date have recently been accepted and are likely to see a release in Bitcoin Core 0.15. This should reduce disruption in the eventuality that the hard fork goes ahead and offers a degree of separation between nodes that run the reference client and those that run btc1 code.

There are also concerns over the commitment to ongoing support of a client that diverges from the Core repository, with its ongoing release schedule of new features and efficiency improvements. With just a handful of developers contributing to the btc1 code and with no roadmap beyond the hard fork set out the future of btc1 development is currently unknown.

Slush, operator of the first Bitcoin mining pool

So the problem therefore isn’t so much the idea of a hard fork or the size of the blocks so much as the governance precedence that it will set.

The next three months

With the current Bitcoin mempool hovering around historically low levels, Segwit on its way to activation and ‘big block’ Bitcoin Cash already live the push for the Segwit2x hard fork lacks the impetus it had when it was first announced. Opponents claim that it puts the decentralisation of the protocol at risk for little gain.

Whether the miners who support the NYA’s second phase will go ahead and mine on the new chain come November remains to be seen and although individuals representing 83% of hash rate did sign the NYA it is worth remembering that 17% of hash rate didn’t. Hash power is not the be-all and end-all arbiter of any debate and signatories of the NYA are under no obligation to exclusively mine the ‘2x chain’ in perpetuity. Mining by its very nature is driven by profit after all.

The hard fork by the Bitcoin Cash team had very little impact on Bitcoin itself. Indeed, Bitcoin’s value has risen as a result of this demonstration of resistance to forced change as it continues to hit new all time highs. It seems likely that we may again have to wait for the market to decide which has the greatest value going forward — be that Bitcoin, Bitcoin Cash or the Segwit2x chain.

Bitcoin looks set to now always be embroiled in some kind of debate over its governance. That is to be expected with a decentralised network that is currently valued in excess of $70 billion. Bitcoin has weathered all previous attempts to change by dictate and coercion and ninety days after Segwit activates we will see if that still holds true.