By the end of November 2017, Bitcoin is going to experience two hard forks, as planned by Bitcoin Gold and Segwit2x projects. These forks will potentially lead to three different "Bitcoin" chains with a common origin: the current Bitcoin blockchain. This article serves as a walkthrough guide to survive this fork and perhaps profit from them. We tried hard to gather as much valid information as possible, but please double-check everything and use at your own risk. That goes as well for any other info on the matter you find on other Internet sites.
First of all, what is a hard fork, what is Bitcoin Gold and what is Segwit2x?
What Is A Hard Fork
A hard fork in the cryptocurrency jargon is a change to the underlying software protocol with new rules that (might) improve the system. These new rules might be modifications in data structures, different difficulty or an increase of valid transactions.
This protocol change means a permanent divergence is created in the blockchain, the ever-growing ledger of transaction records grouped in blocks, which are linked and cryptographically secured with the process called ‘mining.'
The original or ‘parent’ blockchain and the forked one are identical up to the specific block number, where the hard fork occurred, but after that (due to changed protocol rules in the forked chain) they diverge. You can think of it as follows: a hard fork is a correct copy of its parent up to a specific block number, but after that, it differs.
Thus, if at the time of the hard fork, you ‘owned’ 10 coins on the parent blockchain, then you will have ten coins on the hard fork chain as well. And you can spend both without any problem.
Hard forks are nothing but rare in cryptocurrencies. Just a few days ago, the Ethereum network went through its fifth hard fork, called Byzantium. And Bitcoin underwent one on August 1, when BitcoinCash forked from the parent blockchain.
What Is Bitcoin Gold
Bitcoin Gold is a hard fork which aims to “make Bitcoin decentralized again.” But what kind of centralization are they talking about?
The thing is the bitcoin block validation process (the so-called ‘mining’) is currently dominated by special computer hardware designed for this task, called ASICs (Application-Specific Integrated Circuits).
The real problem is that the bitcoin mining power (aka ‘hashrate’) has been increasingly concentrated in large data centers with thousands of ASICs. The majority of those data centers operate in China and are owned by a few mining companies, mostly Chinese as well.
Moreover, the production of ASIC hardware itself is highly centralized. A single Chinese manufacturer, Bitmain, clearly dominates the hardware market selling integrated mining machines, such as the famous Antminer S9. The price tag for such a bitcoin mining machine starts at 1750 dollars. But you have to pay in BTC while waiting for months for your order.
At this moment, you have possibly started to grasp the centralization problem that Bitcoin Gold aspires to ‘solve.'
Now, the Bitcoin Gold project implements a different Proof of Work (PoW) algorithm than Bitcoin’s SHA-256. The new PoW, called Equihash, is ASIC-resistant, which means that it makes it difficult for an ASIC to perform the block validation process faster than a high-end graphics cards (GPU). To put it simply, Bitcoin Gold will be using the Equihash PoW to be mined by GPUs, not ASICs. Farewell, Bitmain.
First announced in late August 2017, Bitcoin Gold was started by Jack Liao, CEO of Hong Kong-based mining hardware producer LightningASIC. Do you find it strange that an ASIC manufacturer initiates an ‘ASIC-resistant’ cryptocurrency? We do, too, but that is the subject of another discussion/post.
Except for the different PoW algorithm, Bitcoin Gold (or BGold) will also implement replay protection, different address formatting and difficulty adjustment in every block. So, it will be a new cryptocurrency, utterly separate from bitcoin, but sharing with it the same past.
The Bitcoin Gold hard fork is scheduled to occur on October 25.
At that day, anyone who owns bitcoin (BTC) will receive the equivalent quantity of the new cryptocurrency, Bitcoin Gold (BTG). Mind the ‘own’ verb. To be able to claim your BTG after the hard fork, you need to have total control of your BTC. To do that, you need to have your coins stored in your official Bitcoin wallet installed on your computer giving you access to the private keys. These keys identify you as the sole owner of a bitcoin address, thus BTC.
Do not leave your BTC on exchanges or online/soft wallets. If you do that, then you don’t own your assets, and you will have to wait as long as it takes for the exchange/wallet to support BTG trading. How long? It could be from one week to even one month and more. An example: Coinbase users, who had their BTC on that exchange platform on August 1, are still waiting for Coinbase to credit their accounts with the equivalent Bitcoin Cash coins.
What is Segwit2x?
Segwit2x is a working group of developers, lead by Jeff Garzik, tasked to design, implement, build, test, and deploy the software required to scale the current Bitcoin network, as described in the agreement reached on May 21, 2017, in New York between significant Bitcoin companies. That agreement is usually abbreviated as NYA.
In its current incarnation, the Bitcoin protocol has a hardcoded limit (called ‘block size limit’). It validates transactions in ‘blocks’ which are up to 1MB, and a new block of transactions is generated every ~10 minutes. In essence, you have to wait at least 10 minutes before your new transaction even has the chance to be validated once (‘mined in a block’). And usually you need to wait for at least six confirmations (6 blocks mined), that is an hour or more before the receiver of your transaction is 100% confident that it nobody can reverse it. In fact, the block limit is also a limit in the Transactions per Second (TPS) that current Bitcoin supports. The only way to make a transaction validate faster is to pay a higher fee to miners, which naturally raises the cost of it.
Since last August, a code optimization called Segregated Witness (SegWit) is active in Bitcoin. SegWit promises to increase the size limit and TPS, but it will take time until all Bitcoin nodes fully support SegWit transactions. At the time of writing, bitcoin blocks are still below 1MB while Segwit transactions amount to just above 10% of the total.
The Segwit2x hard fork, which supports SegWit by default, will increase at once the block size limit to 2MB, from 1MB in the current Bitcoin (and Bitcoin Gold).
The 2x hardfork is scheduled to occur at block height 494,784, which will be somewhere around November 18.
Because Segwit2x is one of the many outcomes of an everlasting ‘scaling debate’ inside Bitcoin, we will not go into much details about its past or technicalities. We would need thousands of words (mostly crypto jargon) to describe the various back and forths, the processes, the proposals inside Bitcoin that gave birth to Segwit2x. What you need to know is that Segwit2x is a much different beast than Bitcoin Cash or Bitcoin Gold.
The main differences are:
- Segwit2x has explicit ‘support’ of a vast majority of bitcoin miners, ~ 85% at the time of writing.
- Segwit2x intends to ‘upgrade’ Bitcoin itself rather than create an altcoin, as BTG will do. For instance, it will fork without strong replay protection.
- No one of the ‘current’ Bitcoin developer team supports it. In fact, they publicly denounced the NYA.
These traits make Segwit2x a different hard fork but possibly a messy one. At this moment, nobody knows what the outcome will be. We might end up with a Bitcoin blockchain (BTC or if you prefer B1X) and a Segwit2x blockchain (let’s call it B2X), but it is equally possible that only one chain will survive, which will be called plainly Bitcoin.
Regardless of this, and because of lacking strong replay protection, transactions on the current/parent chain and the SegWit2x chain will look the same, and will be possibly valid on both. Someone trying to spend coins on one chain might accidentally pay the same amount on the other one. So what will you do? Simple. Don’t spend anything (be it BTC, B1X, B2X or whatever) at all, until the hard fork is fully completed and balance is restored in the crypto-universe.
To be safe, do not leave your current BTC on online wallets or exchanges.
Make sure you own your coins, by having access to their private keys. Before the hard fork, transfer your bitcoins to a wallet you installed on your computer. After the hard fork, wait for enough time until the matter is resolved. By then, JustCryptoNews.com will publish detailed guides explaining how to claim your coins in the hard fork chains.
If all three chains survive, you should be able to claim B2X and BTG by the end of November, provided you control the original BTC private keys. Who knows, you might end up with more value than now, without even moving your finger.