Amidst the cryptocurrency boom, Bitcoin has recently reached its all time high. Through the last few days, the price has gone up more than 20% and many people are wondering why.
The main cause of this huge surge is due to the Bitcoin community finally announcing some sort of agreement towards it's long term issue of scalability. Following the Bitcoin scale-ability discussion at Consensus 2017, where key members of the Bitcoin industry all agreed that a fork will be needed to solve this scale-ability issue, another agreement was made by 56 companies that represent 83% of the hash rate of the Bitcoin ecosystem. This agreement, announced by Digital Currency Group in a Medium post, states that this group of companies will adhere to the Segwit2MB proposal. To explain this proposal, let's get into some Bitcoin fork history.
What is a fork?
A fork in the blockchain is when a new rule is introduced to the system, potentially creating a whole new currency if the mining community is divided. A soft fork is forward-compatible, meaning it will not create a permanent fork in the blockchain, hoping to gain majority influence by upgrading to the new system; in this case, the blockchain will still accept both non-upgraded and upgraded node blocks in order to reach this majority. However, a hard fork is not forward-compatible, meaning non-upgraded nodes will not see transactions as valid and this would create another currency due to a disagreement in rules of the blockchain.
Segregated Witness Soft Fork (Bitcoin Core Developers)
So what exactly is Segregated Witness (Segwit)? Segwit was a proposal put forth by the Bitcoin Core Developers back in 2015, which under 95% consensus of the Bitcoin mining ecosystem, would soft fork to activate Segwit. Segwit aims to segregate the witness of the signature from the transaction, reducing the transaction size and in turn resulting in more transactions per Block. I also want to emphasize that Segwit also removes transaction malleability from the equation, which has been another long term issue in the Bitcoin blockchain. This proposal is less controversial because it is a soft fork, under a 95% hashrate consensus, the whole blockchain will upgrade, avoiding creating a whole new cryptocurrency.
2 MB Hard Fork(Bitcoin Unlimited)
Bitcoin unlimited proposed to instead of activating Segwit soft fork (decreasing transaction size), to increase the block size from 1 MB to 2 MB. This would allow for more transactions per block as well. However, this is a hard fork because this upgrade is not forward-compatible, meaning for the nodes that do NOT upgrade to the 2 MB block size, a new currency will essentially be created. In this case, the part of the community that wants to follow Bitcoin Core's proposal of Segwit will remain to be BTC and the other part of the community that wants to follow Bitcoin unlimited's proposal will then become BTU.
Segwit 2 MB Proposal
Segwit 2 MB proposal is essentially a hybrid version of the two proposals from BTC and BTU, combining the activation of segregation witness and an increase in the block size. This proposal was brought forth by Sergio Demian Lerner in late March. It essentially states that after a 95% consensus of a Segwit activation, there will be a block countdown of activating the 2 MB hard fork, decreasing both the transaction size as well as increasing the block size. At Consensus 2017 recently, a group of companies that control 83% of the Bitcoin hashrate collaborated and came to an agreement that Segwit will be activated at 80% consensus of the system and a 2 MB Block Size hard fork to follow in within 6 months. This agreement does indeed deviate from the 95% consensus set both by the Bitcoin Core Developers as well as the Seg 2 MB Proposal. One controversial aspect of this agreement is that the Core Developers are absent from the activation of this proposal.
Closing Thoughts
It makes sense that the Bitcoin price did surge based on the speculation of resolving this scale-ability issue that the Bitcoin community has struggled over for so many years. Whether or not things will work out will depend on how the community executes and who are the ones willing to make a compromise. It is to my hopes that the community will come to more of a collaborative mindset than a competitive one; that would be the only way to keep improving the cryptocurrency industry.
I'd really like to thank Litecoin for being the first cryptocurrency to activate Segregated Witness, putting a theory into application and giving the Bitcoin community more confidence in doing the same. I feel like the big picture here would be the adoption of the Lightning Network (LN) by both Bitcoin and Litecoin. Segwit fixing transaction malleability lays the foundation for LN and brings us one step closer to this huge upgrade. Not only does LN bring forth lightning fast transactions, it also connects BTC and LTC, enabling LTC to support BTC in handling it's large amounts of transaction traffic. This would then complete the vision of BTC is to gold as LTC is to silver, bringing forth a more efficient and collaborative economy. I sincerely hope the community will become more supportive of collaboration, as it fits Satoshi's philosophy of decentralization.