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(+) Bitcoin Hard Fork: The Game Plan

The next Bitcoin fork is arguably the most discordant to date. Clear lines of battle have been drawn, paving the way for a potentially Lutheran schism in the blockchain community. ( Note: The author is a bit dramatic, but all the signs seem to show that a serious divergence is gaining momentum. )

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Looking at the bitcoin price, one could hardly conclude that the original blockchain currency is facing turmoil. Bitcoin added a staggering 24% last week on the way to new records. However, one of the motives for buying bitcoin is the hard fork itself. If you own Bitcoin the day of the fork, you will also receive the same value of the new digital currency. ( If your cryptocurrency exchange does not support the new coin, you can still threaten to sue as bitcoin cash backers did at Coinbase. )


The next hard fork, scheduled for mid-November, will create two competing versions of bitcoin. We recently speculated that the new coin is unlikely to create controversy over the "real" bitcoin, but as Jeff John Roberts of Fortune argues, this disagreement is already underway.

Like the forks before, the crux of the debate is how to best optimize the Bitcoin network. The backers of SegWit2x want to double the size of the bitcoin blocks to increase the transaction capacity.

The new protocol's backers include bitcoin miners who use advanced computers to compile transactions. According to them, larger blocks are desperately needed to cope with the massive growth of the blockchain network, as well as to reduce transaction costs. As Roberts also notes, these miners are part of a consortium that includes "some exchanges, portfolio providers, market makers and storage chests".

Here is an overview of the interaction between Bitcoin, Bitcoin Cash and the upcoming SegWit2X fork.

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Bitcoin (CTB) Activated by SegWit No increase in block size
Bitcoin Cash (BCH) No activated SegWit Increasing the block size to 8 MB
Abstract SegWi2x (B2X) Activated by SegWit To increase the size of the block

The plan of the game

As might be expected, the broader implications of SegWit2x will probably not be known until the day of the fork. But that should not stop you from formulating a game plan. The big question right now is which version of bitcoin will get the coveted name of the BTC ticker. In the current state of things, the exchanges did not comment on the bitcoin version that they will support, although Bitfinex will run the SegWit2x channel in B2X.

On the GDAX, the hash power will decide which channel will receive the BTC ticker. Until now, there is no news on what Bitstamp, bitFlyer and Kraken want to do.

Rather than following a few dozen exchanges of bitcoins, investors might want to focus on Coinbase. The San Francisco-based platform has long been regarded as the proxy of the industry; how he chooses to manage the fork (and the potential split) will have direct implications on the market.

A hard fork is a software change that may split the blockchain into two, especially if the community does not agree on it. (Laura Shin, Forbes)

When it comes time to fork, market participants must be clear about their intentions. The first question you need to ask yourself is: Am I planning to trade with different bitcoin chains anytime soon, or do I want to keep the coins as long-term investments? ? If you prefer the latter, then you should think of storing your coins in a wallet. ( Note: wallets made of paper and materials offer more security. )

Those of us speculating on bitcoin should be aware that the next fork could become very messy. It is not known which channel the stock exchanges will list as BTC, which means that the price of BTC could differ enormously across the brokerage community. ( Note: If you observe very different prices for BTC, it means you are looking at two different coins. )

Adding more confusion is the fact that the SegWit2x protocol will fork without adequate replay protection. This means that the BTC and B2X transactions will appear identical after the range. To avoid accidentally spending new parts, avoid exchanging them all together after the fork. This also includes not accepting payments via mobile wallets, since BTC will reflect the greater hash power of the room.

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In addition, claiming your coins will prove difficult well after the fork when dedicated wallets for both blockchains will emerge.

If you are a trader, there is even more confusion as to whether BTC and B2X will have a price correlation. After the Bitcoin Cash fork, BTH and BTC appeared to be in inverse correlation for a while. However, recently, all that is called bitcoin has moved in the same direction: Up.

The conclusions we have drawn in this section may annoy some of our members, but complex situations usually require measured measures. In this case, staying on the sidelines until dust settles might be the best approach.

Altcoin Advantage?

Altcoins have benefited greatly from the meteoric rise of Bitcoin – until recently. The last push of bitcoin has largely failed to take altcoins for the ride. This has led to speculation that the altcoin universe is undervalued. An output of the bitcoin asset class could therefore be a tailwind for the altcoins before and after the fork.

Currently, bitcoin of origin controls about 63% of the cryptocurrency market. This figure fell below half earlier in the year as investors diversified away from bitcoin while others became more annoyed by the slow process of bitcoin trading. If diversification is part of your strategy, now perhaps the best to consider altcoins. The author sees no reason why the altcoin universe can not control at least half of the cryptocurrency market, especially if we witness a long-awaited correction in the BTC.

Total capitalization of the cryptocurrency market with Bitcoin

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Total capitalization of the cryptocurrency market without bitcoins

Final considerations

There is no guarantee that bitcoin prices will dive after the hard range. Regardless of which blockchain is running for BTC, Bitcoin is benefiting from significant growth potential thanks to growing institutional support from major stock exchanges. CME and CBOE have announced plans for Bitcoin futures shortly. a strong sign that institutional capital will flow as never before.

To recap:

  1. Protect your coins in a stiff paper or wallet for added security.
  2. Avoid processing the BTC symbol before and after the day of the fork.
  3. After the day of the fork, only access your coins when you see dedicated wallets for both blockchains.
  4. Take advantage of altcoin universally undervalued if bitcoin becomes volatile.

As Fork Day approaches, keep your wits (and your coins) on you and avoid trouble.

Featured image offered by Shutterstock.