Bitcoin's price reached a record high on Wednesday as news broke that the Segwit2x hard fork had been canceled. The highly contentious hard fork, which was considered by some to be an upgrade to Bitcoin, was the second part of the New York Agreement (NYA) scaling plan and would have increased the base block size to 2MB.
Although the plan originally enjoyed about 95% of Bitcoin's hashrate backing it, support had been waning with an increasing pace and many influential signers backed out of the NYA on Wednesday morning. Many of those withdrawing support – which included the lead developer Jeff Garzik – cited the lack of support in the community as the reason for suspending the upgrade.
“Our goal has always been a smooth upgrade for Bitcoin… Unfortunately, it is clear that we have not built sufficient consensus for a clean blocksize upgrade at this time. Continuing on the current path could divide the community and be a setback to Bitcoin’s growth.” — Mike Belshe, BitGo CEO
There has been no word from NYA coordinator Barry Silbert at press time, but with no lead developer, the absence of the most popular wallet platforms, and a large group in opposition of the plan, the chance of success for the Segwit2x hard fork is extremely low. At around 11am EST on Wednesday, Bitpay CEO Stephen Pair published his concession on twitter, almost immediately followed by the rest of the group’s official notification on the Segwit2x development mailing list. Both notices agreed that harm would befall the industry if they pressed forward with the hard fork. Pair’s announcement added that the damage could extend far beyond Bitcoin and that the entire blockchain industry could suffer as a result.
At the time of the latter announcement, bitcoin’s price was $7,477 on Bitfinex and it took another 10 minutes for the markets to react. The price then impressively shot up to a new all-time high of $7,899.90 on the same exchange, before the bears arrived 23 minutes later. It then dived briefly to below $7,000 and has since climbed above $7,400, with continued volatility in the low 7000's ever since.
Meanwhile, many of the altcoin markets surged by 20% or more, suggesting that the pullback in bitcoin’s price after the peak was comprised of investors fleeing into many different altcoins now that they no longer have a Segwit2x ‘airdrop’ of free dividend coins to look forward to.
At the same time, the futures markets for the Segwit2x coin crashed completely to $1 before a marginal uptick. According to Bitfinex, holders of that token will walk away empty-handed, as their value would be zero if no Segwit2x blockchain exists. However, a negligible price still remains for the tokens until the contract’s expiry, based on the remote chance that someone else picks up the blockchain and attempts to fork it anyway.
While the group that backed out on Wednesday did not cite any one specific reason that made them reconsider their months-long campaign to upgrade Bitcoin, many problems with the NYA forking effort had begun to surface ever since the Segwit implementation. The revelation that lead developer Garzik had been working on his own competing cryptocurrency ICO, Metronome, was an added complication.
First and foremost, mining hashrate had been falling at an increasing rate. While Slush pool and F2Pool kept gaining hashrate as new miners joined their pools, the smaller Kano pool also dropped out of the NYA, bringing the opposition to the scaling plan up to between 20% and 25%. The resulting 75% to 80% of the hashrate that still planned to mine for the NYA was a far cry from the 95% originally agreed upon during the NYA signing, and the rate was still dropping on Tuesday.
Although financial warnings have abounded ever since the Segwit2x upgrade was proposed, a particularly dire warning was issued by Dan Robinson, a developer and lawyer at Chain. According to Robinson’s calculations, miners supporting the fork would stand to lose as much as $100 million in the first 10 days, because 80% of miners mining the forked Segwit2x blockchain for that period will only earn $22 million worth of the much less profitable B2X blocks. Meanwhile, Bitcoin’s miners would be earning $89 million with their far more profitable, albeit fewer, blocks during the same period of time.
“If a miner would rather hold B2X, they could earn it four times faster by mining [bitcoin] and trading it for B2X.” — Dan Robinson, product architect, Chain
Several major wallet providers had made cautionary statements as well, spelling out the danger involved with the contentious hard fork without officially picking a side. Trezor, Ledger, Breadwallet, Blockchain, and Exodus had all given their customers warnings during the last week, advising them to pause making transactions until the fork was completed. Blockchain, the most popular web-based wallet service, planned to completely shut down their bitcoin service for at least 24 hours due to the expected instability.
Another interesting growth metric was the number of nodes running the Bitcoin core software, which rose from under 95,000 nodes in October to over 127,000 at press time. The theory being that the more bitcoin core nodes that exist, the stronger the legacy blockchain will be that remains in opposition to the Segwit2x blockchain.
Bitcoin exchanges continued to drop out in the week leading up to press time, including popular cryptocurrency exchange Bittrex and the Philippine’s largest Bitcoin business, SCI. Issuing a statement on Monday, SCI took aim at a flaw in the NYA, which was that no Bitcoin Improvement Proposal (BIP) was submitted to the development community. Since none were submitted for the entire Segwit2x effort, the company’s official stance was that the development process, and the safety net that comes with that, had been completely bypassed.
“The process is democratic and fair to all. No BIP, no changes. It has worked so far for the last eight years, and there is no reason why it should be bypassed now.” — SCI
A grassroots campaign on Twitter called #No2x had also been voicing strong opposition to the hard fork. Many influential bitcoin community members such as Blockstream’s Samson Mow and Litecoin creator Charlie Lee added the hashtag to their twitter usernames and on other social media platforms. On Tuesday, Nick Szabo, the developer thought by many to be Satoshi Nakamoto — the creator of Bitcoin — added the #No2x hashtag to his twitter account too. The action is thought by some to be the final straw that broke the NYA camel’s back.