In general, most of the days I am not to worried about the possible upcoming ‘fork era’ in the Bitcoin environment. I think it is a lot of FUD and finally the game theory where the idea of Bitcoin is based on will steer the participants in the right direction. However, some days if I read articles about bugs that are found in code or crazy plans announced by Jihan Wu, I am quite worried.
In the previous months I have been following the scaling debat very closely. Today I was brainstorming about different possible outcomes and decided to write a post about it.
Lets start with the two doom scenario’s:
-Bugs in the software:
Chance: very small Effect: negative to very negative
The code for Segwit x2 is created and tested last minute by less experienced coders. On the testnet was a bug that created a fork! In worse case, the bitcoin network could crash because of a bug and so will the price. However, the chance is small and even if this happens the community will probably easily reach consensus for a fork to fix it if the end of Bitcoin is nearby. So it will not be the end, but a lot of panic and a long or permanent loss of trust in the network.
-Chain split followed by an attack of the minority chain
Chance: very small Effect: very negative
When a part of the miners that are signaling Segwit x2 don't upgrade at the last moment because they don't trust the code or they are cheating the community (Only been signaling to make the community think that they don't have to run UASF to get Segwit), less than 80% upgrades to Segwit and the UASF will cause a chain split.
Probably the UASF chain will have the biggest part of the users and economic activity behind it and is more valuable because it is upgraded to Segwit, which will bring a lot of new innovation and lower the transaction cost. Beside that a re-org will wipe out transactions on the legacy chain and not on the Segwit chain. This will cause the miners to shift to the UASF chain because this is way more profitable.
The problem is that the UASF chain will only have a tiny amount of hashing power behind it in the beginning, because under miners it isn't popular at all. This gives Jihan Wu the opportunity to attack the UASF chain by using a part of his hashing power to mine empty blocks for a while, so the network becomes useless. Core could answer this attack by changing POW, but this will destroy one of the most valuable pillars of bitcoin, the incredible strong security!
Now a negative, but acceptable and more likely scenario:
-A fork where two bitcoins are created appears, and both of them survive
Chance: smal / moderate Effect: negative
A fork can happen in the beginning of August and later (2nd part of Segwit 2x e.g.) as well. When it happens during the UASF event, there will probably be a Segwit and a not Segwit chain. This could be negative because it will violence the limited supply feature, it will damage the reputation as a store of value and create panic and confusion along newbies.
However, when both of the coins get their following, the divided community can follow their own path and the market will decide the value. There will be one bitcoin with Segwit that functions as digital gold and as a fundament for innovation and one bitcoin that is fast and cheap and can be used to buy a cup of coffee.
In the short term this is negative, but in the long term it could be good because the 3 years ongoing scaling war has ended and both of the coins can follow their own roadmap. When the split happens during a hard fork later on, the technical difference between the coins is smaller because both of them have Segwit implemented. This will be more a political split. So if it happens, I prefer it to happen in August.
Most likely and positive scenario:
No fork at all and Segwit gets implemented
Chance: big Effect: very positief
At the moment far more than 80% of the miners are signaling for one of the proposals of Segwit. Since they are all compatible with each other, a split is not likely when the miners who are signaling keep their promise and upgrade. If more than 80% upgrades, Segwit x2 will activate and the UASF becomes obsolete.
The remaining minority will have to upgrade to not loose their investments. Theoretically it is still possible that a small minority keeps mining the not segwit chain, but since the opponents of the scaling debate are both participating in the upgrade to Segwit, this isn't likely. The last remaining miners will probably choose for financial incentive instead of politics.
In this scenario Bitcoin will be still one blockchain, Segwit is implemented and can boost a lot of new innovation and the scaling debate is partly / temporarily resolved. This will create a huge inflow of money waiting on the sidelines to be invested when the future of Bitcoin is more certain.
Also, there is a chance that many Segwit x2 signaling parties will drop this software after Segwit gets implemented and choose for a more secure hard fork on a later date, whereby also other things can get fixed. There is a good chance for wider consensus, because the need for a solution is not so critical anymore. Now a later chain split is avoided.
Conclusion:
There is a very small chance that the coming months will permanently damage or destroy Bitcoin because of the upcoming events. If this happens huge price drops will occur and there will be panic all around. Happily the chance is tiny and when the end is near, consensus to launch a fork to safe the network is way easier to reach. We all want Bitcoin to survive right?
Furthermore I think that a fork is already partly priced into the market, so when a fork occurs I don’t expect to much panic and I think within a few months to a year the price of both coins combined will be higher than the current price.
When no fork occurs, what I think is most likely I expect the Bitcoin price to skyrocket! The scaling debate is already pushing the Bitcoin price downward for years and when this is resolved, a big downward force is gone. Also since a fork is already partly priced into the market it will force the price up if it doesn't happen. The last weeks there was so much good news about adoption, legalization ect. but the price only went down because of the fear.
Lets hope the best outcome will happen and we can remain on our way to the moon again and go back to 80 - 90 % market dominance!
Do you like this post? Do you have additional information or doubts about my thoughts, please leave a comment!
Disclaimer:
This is a description of my thoughts and no investment advice. If you want to invest in Bitcoin, do your own research and take the responsibility yourself!