SegWit: What does it all mean?
A handful of SegWit activation deadlines are rapidly approaching and there is lots of jargon flying around that a lot of people may find difficult to understand. The amount of different outcomes and software updates may also cause some confusion and leave users wondering how the whole process is going to effect them. For Views on the News this week, although not directly offering any views on any news, I am going to try and break down SegWit, explain any jargon, go through all the potential outcomes and how it may effect bitcoin users. Wish me luck.
WHAT IS SEGWIT?
In a nutshell, Segregated Witness (SegWit) is a an upgrade to the bitcoin network initially proposed in December 2015 by the development team at Bitcoin Core. Since then it has been the main talking point of the long-running bitcoin scaling debate, which focuses on the alleged need to increase block size in an attempt to bring transaction fees and processing time down. The complication comes with how SegWit is going to be activated. The team at Bitcoin Core defined their upgrade as Bitcoin Improvement Proposal 141 (BIP141). The second upgrade has been coined Bitcoin Improvement Proposal 148 (BIP148) and is similar in essence to BIP141. A third upgrade has also taken form called The New York Agreement (you have probably seen it called SegWit2x). This upgrade aims to activate SegWit through Bitcoin Improvement Proposal 91 (BIP91) as well as increase the base block size from 1MB to 2MB three months later.
SegWit2x aims to activate SegWit through BIP91. Once SegWit2x is activated, all BIP91 nodes will reject any blocks that don’t signal readiness for SegWit. However, BIP91 nodes would only do this if a majority of 80% of miners support BIP91, a majority that looks to be on the cards. SegWit2x is the approach favoured by the miners as, with a larger block size, it will require less power to mine the blocks, but will reap a higher reward for doing so, hence why SegWit2x has such a backing from bitcoin’s mining community. However this approach is not popular with bitcoin users who would prefer that SegWit was activated without the 1MB increase in block size. Although both SegWit2x and BIP148 are trying to accelerate the activation of SegWit, there could be a potential split in the chain if the block size does end up being increased.
BIP141 was the original upgrade suggested by the Bitcoin Core development team. It requires a 95% acceptance rate from the miners to be implemented. The risk of the chain splitting upon activation is low so long as the miners who signalled readiness are actually ready for the upgrade. However, only 40-45% of miners have currently signalled their readiness, provoking a selection of bitcoin users to attempt activate SegWit through BIP148, a user-activated soft fork, on August 1st.
BIP148 came about in relation to the fact that only 40-45% of miners have signalled readiness for BIP141, which is a problem as it can only be implemented with 95% of miners signalling they are ready. Because of this, a segment of bitcoin users are planning to activate SegWit through the implementation of BIP148, a user-activated soft fork. This means that on August 1st, nodes will start to reject blocks that don’t show readiness for BIP141. If BIP148 is then supported by a majority of the miners then SegWit will be activated, and we will avoid a split in the chain. The problem arises if BIP148 is only supported by a minority of miners. This could result in the BIP148 chain splitting off from the current chain, potentially leaving us with 2 separate bitcoin ‘forms’ (one that only works on the original chain and one that only works on the BIP148 chain). The BIP148 UASF is scheduled to activate on August 1st, only a few days after the potential activation of SegWit2x.
SO WHAT IS GOING TO HAPPEN?
At the moment, the only thing that is guaranteed is the activation of SegWit through the UASF on August 1st. While there are competing activation methods, BIP141 and SegWit2x are both just expressed intent to signal readiness, no promises or guarantees have been made. The fact that such a large percentage of miners have to signal their intent for one of the solutions means that there is always a chance that one of them suddenly loses the support of a portion of the mining community, failing to meet the majority and ultimately resulting in that solution, whichever it may be, not being implemented. This would keep the chain as one, with SegWit activated through the only definite thus far in the debate, the user-activated soft fork. If a split in the chain does happen and we get two different forms of bitcoin, then anyone who owns bitcoin at the time of the split will automatically have both forms of the new bitcoin, as long as they are holding their own private keys or the exchange/wallet provider they use supports both chains. There may be a requirement to download some new software to gain access to the second fork and you should do your own research into how this is done.
WHAT SHOULD USERS DO?
The consensus is that users should proceed with caution for the next few weeks, as well as wait for concrete signs that things are back to normal before going back to using their bitcoins the way they do currently in this pre-SegWit world. The technical community suggest that you move your bitcoins to a private wallet that only you control the private key for and try not to make any transactions in the days leading up to August 1st, just in case the transaction doesn’t get processed in time. However if you are on the non-technical side it makes sense to hold your coins with an exchange or wallet provider that will be open for both chains should a hard fork occur. It would then be advisable to avoid making transactions post-August 1st until the situation becomes more clear and the near future of bitcoin becomes apparent.
WHAT IS COINCORNER’S STANCE?
We are planning on announcing our stance on SegWit in the coming days.
Image source: https://bitcoinmagazine.com/