The month of July going into August promises to be really interesting in the world of Bitcoin. This is when two proposals for scaling the Bitcoin network (increasing it’s transaction capacity and lowering fees) are planned to come into effect. The catch is: We don’t know which proposal will activate!
What is happening?The Bitcoin network will most likely upgrade to include new rules that will allow it to support more people and more transactions per second. This is great news because these changes will help Bitcoin grow and finally begin to address the congestion problem that has caused Bitcoin’s transaction fees to increase from a few cents to several dollars over the past few years!
When is this going to happen?Towards the end of July we will begin to see which specific proposal gains support from the majority of the miners on the network. In the best case scenario, we will see the first proposal known as “Segwit2X” activate smoothly just before August 1st. In this case there should be no disruption for Bitcoin users (yet…). If Segwit2X doesn’t activate then August 1st could be a problem; that’s when the second proposal known as “BIP148” is due to kick in. There is a good chance the Bitcoin network would fork at that point.
What is a fork?A fork, in Bitcoin terms, is when two different blockchains emerge from a common history. Essentially, Bitcoin would split in two and go down different paths that may or may not be sustainable. A person using a regular wallet may end up paying someone on the wrong fork or on both, unintentionally. It is a dangerous time to actually send (or receive) bitcoin.
Are my bitcoins at risk?!?Probably not, but what happens depends on where you store your bitcoin.
- IF you store your funds in CoinSpace app, then you’ll be safe no matter what happens. BE SURE you have written down your passphrase on paper and stored that securely!
- IF you use another private, non-custodial wallet like Blockchain, Mycelium, Airbitz, Copay, Breadwallet, Electrum, Exodus, and several others; then you’ll also be safe. BE SURE you have made a paper backup and stored it in a safe place!
- IF you have a custodial wallet or bitcoin stored on an exchange or website such as Coinbase, LocalBitcoins, Paxful, Backpage, Xapo, Freewallet, GDAX, Kraken, BitStamp, Poloniex, and several others; then your bitcoin is in the hands of a third-party. In the event of a fork (possible, but not guaranteed) it will be entirely up to them which fork they follow and which coins you get. That may be fine for you if you trust the sites you are using with this decision. Anyone who wants the choice of what happens to their coins should send their bitcoin to one of the non-custodial wallets above as soon as possible (at least before August 1st).
Can I safely use bitcoin (send or receive)? This is where things get a little tricky…. You can use Bitcoin normally up until August 1st. After that depends on whether or not the network has forked. We will be watching these events closely and will offer guidance the best we can to our customers at Coin.Space, as will Bitcoin news sites such as Coindesk and Bitcoin Magazine.
The hope is that Segwit2X will activate by July 29th and there will be no interruption to Bitcoin (until November).
Once the network does fork then the ensuing days and weeks will be very uncertain. The safest thing to do under those conditions is to not transact at all (just hold onto your bitcoin) until you receive further guidance.
Advanced info on the August fork riskAs mentioned above, Bitcoin is headed for some interesting weeks and months ahead. Segwit2x is the proposal that appears to have the most support right now and is planned to activate first in late July. BIP148 is the other proposal due to activate August 1st. Both proposals intend to bring an upgrade called Segregated Witness (Segwit) to the network and greater transaction capacity. How they do so differs somewhat, however….
Segwit2X intends to activate Segwit first and then hardfork Bitcoin in November to double “regular” transaction capacity. If Segwit2X fails to activate in late July then BIP148 will go into effect where some full nodes will begin to ignore blocks that don’t signal for Segwit. Because we can expect some miners not to follow BIP148, we can therefore expect that a split in the network will occur, creating two different Bitcoin branches.
Two, Three, Four “Bitcoins”??If (or perhaps when) Bitcoin forks, one side may end up getting the majority of mining power (hashrate) and end up becoming THE “Bitcoin” that the majority of users will follow. Even in this scenario, however, there may be a period when two or more “Bitcoin” blockchains exist and spending or receiving bitcoin under those conditions may be dangerous. With two (or more) forks, a sender doesn’t really know which blockchain the transaction will appear on or which one the receiver is watching to be paid.
On the other hand, it could be the case that two (or more) Bitcoin forks persist and serve different user bases for much longer. Ethereum Classic, for example, famously split from Ethereum over The DAO incident and has remained a viable independent cryptocurrency for nearly a year now. Bitcoin could undergo a similar split where the 1MB chain (+Segwit) and the 2MB chain (+Segwit) go their own separate ways. If this happens and is sustained, then it will be good for Bitcoin users overall.
Double Your Money?If Bitcoin forks and for however long each fork persists, you will have the same quantity of bitcoin across each chain. For example: If you have 100 mBTC (~$250) right now and Bitcoin splits in two, you will have 100 mBTC on Bitcoin1 and 100 mBTC on Bitcoin2 at the time of the split. In a sense, you will have “doubled your money”, however you should keep in mind that the value of bitcoin on each side is likely to plummet probably more than 50% due to all the uncertainty. Only in time, if both chains persist, would your holdings across both possibly end up being worth more (in dollar terms) than what you had before the split. Likewise, if bitcoin splits again you may end up with three “100 mBTC” balances, but the value of all would be highly volatile.
Choose Your PathThe preceding paragraph is only true if you store your private keys in a non-custodial wallet (see the “Are my Bitcoins at Risk?!?” section farther above). Once you have control of your private keys you will have the means to use your coins across any or all forks that come along when tools are developed to safely do so. We would advise most users to wait for further guidance from your wallet developers and from your payees for how to use your coins safely and on what chain.
Expect chaos, uncertainty, and big price swings if/when Bitcoin does eventually fork, but this crypto experiment is resilient and we should all become stronger in the end.