The software for SEGregated WITness (SEGWIT) was finally released last week from Bitcoin Core with a proposal for a soft fork that could happen as early as December. Miners will be able to start signaling that they are pro-segwit from November 15th.
Since the announcement, Bitcoin has rallied almost 10% to its currently tradable figure of $745. The Yuan devaluation has sparked the rally, but this release has definitely added fire to it. As discussed in previous newsletters, any path where Bitcoin miners and devs can rejoin as a community and move on from the block size debate is a positive one, whether that be from Bitcoin Unlimited (BU), Bitcoin Classic, or segwit.
Segwit is seen as a better option given that it does not require a hard fork to be implemented, nor does it introduce a democratic hierarchy, which BU and Classic require to succeed. Furthermore, the software is backwards compatible meaning that miners / nodes who do not accept segwit (if it becomes activated) do not need to update.
The timeline is as follows:
- After 15 November 2016, the first 2,016 block period will begin where miners can start signaling support for segwit.
- If 95% of those 2,016 blocks show support, then segwit locks-in.
- If not, then another 2,016 block round will occur.
- This will keep repeating until a 95% support period has been reached or segwit will recede into the darkness after the last 2,016 block period concludes after 15 November 2017.
Summarising the main benefits of segwit:
- Elimination of unwanted transaction malleability – the segregated witness. Essentially this helps hardware wallets that aren’t connected to a blockchain and don’t have the block history to avoid a “fee attack” whereby a transaction can be split up and spend more in mining fees than initially thought. Read this Bitcoin Magazine article to learn more.
- Capacity increase – The network will be able to support 70% more transactions. In other words, a Blocksize increase to 1.7MB.
- Lightning Network capabilities will available in the future.
There is still a large part of the community unhappy with segwit given that BU and Classic both can support larger than 1.7MB blocks. Initially a 4MB block increase was planned, but that has since been scrapped.
Some people have mentioned that the amount of complexity offered in this soft fork makes it technically difficult for anyone other than the core devs to work on it. Effectively segwit locks out other Bitcoin developers from participating.
If ViaBTC manages to hold its hashrate above 5%, and effectively blocks segwit by choosing to run BU nodes, then Bitcoin could perhaps be stuck in limbo for another year or so.
The percentage acceptance rate during the first 2,016 block period will be interesting to watch come November 15th. Traders anticipating a failure to lock-in segwit will close long positions. If we see a large amount of support, then we could revisit $1,000 by the end of the year.