Bitcoin and its forks

In August, Bitcoin split into two due to bitter disagreements over scalability, which has been plaguing the cryptocurrency for over four years — some have likened the situation to a civil war.

As the popularity of Bitcoin rose and its price reached record highs, the speed of newer transactions has been adversely affected in addition to the rise in the cost per transaction. So, the debate began when the Bitcoin community realized that network capacity needed to be increased to prevent transaction backlogs and curb the rise in the cost of transactions.

The two most popular solutions were either to double the “block size” to include more transactions in each block or to squeeze more transactions into the existing block size by removing unnecessary data from transactions before including them in the block. The latter strategy is called Segregated Witness, or SegWit.

Bitcoin’s Core development team has endorsed SegWit as its preferred strategy and has vehemently opposed increasing the block size. Bitcoin miners, on the other hand, want block size increased. Eventually, a compromise called SegWit2x was reached (also known as the New York Agreement). The signatories agreed to activate SegWit along with doubling the block size.

The timeline for implementing this hybrid plan was to activate SegWit in August and then double the block size in November. So far, SegWit has been activated on the Bitcoin network. In the meantime, Bitcoin’s Core developers are vowing to only support the non-2x chain. Furthermore, as recently as this week, some of the miners who signed the SegWit2x agreement are withdrawing their support for SegWit2x, boosting the non-2x chain.

Given these facts, a chain split seems inevitable in November. The legacy chain, which is supported by the Core developers and some miners, will continue to exist. The upgraded chain with 2x capacity will be supported by most miners.

Altcoins (alternative cryptocurrencies)

During the scaling debate, there have been a few camps proposing entirely different solutions, which clearly indicate their intention to break away from the original Bitcoin. These altcoins are new and alternative cryptocurrencies with a different philosophy. Provided there is enough mining support, altcoins could survive the test of time. Without enough mining support, a chain will eventually die off.

Bitcoin Cash

Bitcoin Cash (BCH) was born at the beginning of August. It introduced a block size eight times larger than the original Bitcoin but does not support SegWit. It is priced at around $300 per BCH today.

Bitcoin Gold

To create a truly decentralised bitcoin, the Bitcoin Gold project aims to change the original hashing algorithm from SHA256 to Equihash, which will enable mining with graphics cards (GPU), allowing even smaller players to mine the cryptocurrency as opposed to centralising the mining to just a few mining giants with access to large server farms. It also aims to implement flexible block size. The chain split to start Bitcoin Gold is planned for 25 October.

What does this mean for owners of Bitcoin?

Given all this information, in just a few weeks, we could have three different chains: Bitcoin Legacy (SegWit), Bitcoin2x (SegWit2x) and Bitcoin Gold.

First, if you own Bitcoin before any of the forks occur, you will receive the exact amount of coins on the alternative chains.

Secondly, some of these chains might not survive. So, after the dust settles, the Bitcoin exchanges of the world (like Coinbase, Luno) will probably credit you with the same amount of coins on the alternative chains that survive the test of time.

Third, some Bitcoin exchanges may decide not to credit you with the coins owed to you. So, if you really want to get your hands on those free altcoins that belong to you after the chain splits, it’s better to move your Bitcoin to a cold storage with access to your own private keys before the splits occur.

Conclusion

Just before the last split occurred, the price of Bitcoin slumped to $1,800 due to uncertainties among traders regarding the chain split. This time, however, we are seeing increased investor interest in Bitcoin ahead of the splits, possibly in anticipation of receiving free altcoins. This increased interest has spiked the price of Bitcoin all the way up to $5,800. Whatever the outcome, these are exciting times for cryptocurrency enthusiasts. Stay calm and hold your private keys!