A little over three months ago, SegWit, a Bitcoin upgrade, was activated after a long and hefty debate. The result of this debate also created an altcoin called Bitcoin Cash, which was created as the opposition to the Segwit solution. Now, we’re on the verge of another split in the Bitcoin network called Segwit2x. For a complete history of everything that’s happened until now, read this post.
The much-awaited Segwit activation came with a condition: a block-size increase within three months of activation (i.e., a hard fork). Miners who were initially against Segwit activated it under the terms of the so-called New York Agreement (NYA). The NYA is also known as the Silbert or DCG Agreement after Barry Silbert, the deal’s broker and the founder of the Digital Currency Group. Silbert brokered the deal between various industry players, most notably mining firm Bitmain, the Coinbase exchange, and the BitPay payment service.
The SegWit soft fork is seeing steadily increasing usage to the network’s benefit (such as lower fees). Further dependent improvements (chiefly, the development of the Lightning Network) are virtually assured. Focus has now shifted to the NYA’s final part, which demands a mid-November 2017 hard fork to increase block size.
Text from the agreement’s announcement on Medium.com
This hard fork is now commonly referred to as SegWit2x, or “S2X.” S2X is implemented in code as btc1 by former Core developer and Bloq CEO Jeff Garzik. It’s scheduled for activation at block height 494,784. The estimated time remaining is displayed via the 2x Countdown site.
6 Major Objections to the NYA
NYA has proven highly unpopular among the Bitcoin user base, judging by commentary and activism across various media platforms. Many Twitter users have adopted the NO2X tag to signal their resistance. As more concrete evidence, consider the number of nodes (97.7% at the time of writing) that have chosen not to switch to btc1:
A breakdown of recent Bitcoin client distribution from Coin.dance; btc1 is displayed as khaki.
Here are the top six objections to the agreement:
1) The primary objection is political. Although the meeting was called “Consensus,” it involved only a small sample of CEOs. The NYA was concluded without input from Bitcoin developers, a majority of companies, or millions of users.
2) As SegWit and its related improvements have already upgraded the transaction capacity of Bitcoin blocks, there’s no pressing need to raise the block size further. Blocks are far from congested. Thus, the secondary aim of the NYA lacks justification.
3) As hard forks are inherently and unavoidably risky and disruptive, they’re best reserved for emergency usage. The only exception is a hard fork with unanimous support that’s been planned long in advance. Forcing through a hurried hard fork with only minority support for no tangible benefit (see point #2) will likely achieve nothing besides chaos and the creation of an S2X altcoin.
4) Multiple Core developers are on record as likely to halt all code contributions should S2X become the dominant chain. All contributors who’ve made their positions known have indicated their rejection of S2X. Without the competence and experience of these developers, the future of Bitcoin is highly uncertain.
5) S2X does not include comprehensive replay protection. This means that after the fork, a transaction on either chain may be “replayed” on the other. This is dangerous and likely to lead to losses. Users who are unaware of this issue will send equal amounts of both S2X and BTC whenever they attempt to send only one kind.
6) S2X has deliberately opposed Core’s attempts to prevent a messy network split with certain code in the 0.15 and later releases.
The NYA: Less than the Sum of Its Parts
In the course of our assembling a spreadsheet of companies listed in the NYA, some interesting facts emerged. Let’s begin with a simple count of the signatories:
Total Number of Signing Entities: 56
This is a fairly impressive number at first glance, but it doesn’t hold up to closer examination. Further, it is outweighed by the number of companies that have withdrawn from or never signed the NYA. This list of nonparticipants shouldn’t be considered complete either; countless companies and projects have simply not expressed a preference either way. It also remains to be seen how many miners will redirect their hash rates from pools that don’t follow their preferred chains.
Total Minus Individuals: 54
From this total, we can subtract two individuals: Gavin Andresen, a former Core developer, and Guy Corem, the former CEO of defunct ASIC manufacturer Spondoolies. Because neither individual is an active developer or CEO, their support for SegWit2x is unlikely to extend beyond PR or perhaps the running of a node. As such, they may be discounted as no more influential than any other Bitcoin user.
Total Minus Individuals and Yours: 53
Ryan X. Charles’s “Yours” startup is a signatory; however, about a week before signing the NYA, Charles announced his decision to switch his project from Bitcoin to Litecoin. As such, Yours has no real stake in the future of Bitcoin and may be discarded as irrelevant.
Total Minus the Foregoing and Subsidiaries: 46
From this total, we may safely deduct the signatures of all subsidiary companies as redundant.
1) Bitmain manages and supplies a number of signatory pools: 1Hash, BTC.com, and BTC.top. All of these pools’ contact details point directly to Bitmain. ViaBTC has already broken the terms of the NYA by mining Bcash, and it’s received about ¥20 million in funding from Bitmain and private investors.
2) Two DCG subsidiaries signed the NYA: Grayscale Investments and Genesis Global Trading.
3) Decentral is the Canadian “innovation hub” that develops the multicoin Jaxx wallet. Counting Decentral and Jaxx as separate entities makes little sense.
Total Minus the Foregoing and Firms That Have Retracted Support: 41
SegWit.Party displays updated stats on S2X support, along with links to evidence of position changes. It indicates that five signatories have thus far publically withdrawn from the NYA:
Total Minus the Foregoing and DCG-Funded Firms: 16
If we next subtract all the companies that have received funding from the Digital Currency Group according to DCG’s portfolio page, we’ll reach a less-impressive total of a mere 16.
Given that DCG is, in many cases, the majority investor in such companies, these firms may arguably be considered tantamount to subsidiaries. After all, major investment tends to purchase a degree of control, especially over small startups.
This may be the most questionable subtraction, as in many cases, the amount of funding received—and thus, the degree of DCG’s influence—is unknown. It may be that some of these companies are capable of operating entirely autonomously of DCG.
Preparing for the Split
Users who were present for the Bitcoin Cash hard fork should have an idea of what to expect. The first rule is to get your coins into a wallet that is under your control. This means moving your coins off exchanges or any other web wallet. Make sure you have access to your private keys.
The major difference this time around is that it won’t be safe to spend coins after the split has occurred due to the lack of replay protection. At this time, we advise all Bitcoin owners to sit tight and wait for a clear plan of action. It may be necessary for users or companies to manually separate their coins, although there are as of yet no clear guidelines for doing so. We would advise users not to trade around the time of the split and to wait for the “all clear” before resuming normal operations.
Hash Power and Block Times
Unsubstantiated leaks have circulated of late indicating that some major miners fully intend to redirect their hash rates to S2X and perhaps even to attacking the incumbent Bitcoin chain. The more hash rates that switch chains, the slower the blocks on the other chain will be until the difficulty adjusts.
While the removal of significant hash power could result in delayed transactions and higher fees for a time, the market would likely correct the imbalance. The situation would be similar to Coke’s exiting its market: soda would be undersupplied only until the remaining competitors ramped up their operations.
What about “Bitcoin Gold”?
Some of you may have heard about Bitcoin Gold, but this has nothing to do with Segwit2x. Bitcoin Gold is yet another hard fork that is planned for October 25th. We’ll elaborate on it further in a different post.
To Conclude: Keep Calm and Own Your Private Keys
In the end, November’s upcoming fork seems like almost the same story all over again. Users should keep their private keys at hand and refrain from conducting any transactions until the coast is clear. What will happen to Bitcoin, its price, and its adoption? No one can really say. This is just one more “free market” exercise we’re going to have to experience in real time.
For a full list of Segwit2x opposers, visit NOB2X. Feel free to add your company as well if you feel like it. What’s your opinion of S2X and the New York Agreement? I’d love to hear it in the comment section below.