Ariel Deschapell is a full-stack JavaScript developer at the Ironhack coding bootcamp in Miami, and a fellow of Henry Hazlitt in digital development at the Foundation for Economic Education
In this article of opinion, Deschapell argues that an upcoming proposal to modify the bitcoin software will not achieve the desired results.
Two weeks before the end of the launch, all eyes are on the imminent fork of bitcoin software: Segwit2x.
What does it mean? The fear that this could trigger the largest and most controversial sharing channel that bitcoin, and perhaps any cryptocurrency, has yet seen. Such an event could have devastating consequences on the ecosystem and its wider perception.
However, a careful analysis of the dynamics at play shows that these fears are largely exaggerated. More likely is the avoidance (or rapid resolution) of such a split, which will also serve as an important test reinforcing the perception of bitcoin as a store of value.
Unprecedented Circumstances
A number of factors have contributed to the escalation of this situation and make it completely unprecedented, and therefore, naturally, surrounded by uncertainty.
Other controversial ranges seeking to increase block size have come and gone with few incidents under the names of Bitcoin XT, Bitcoin Classic and Bitcoin Unlimited. However, 2x differs from these previous attempts in two distinct and important ways.
The first is in his substantial support. The planned 2x range is the result of the "New York Agreement" concluded between an impressive collection of major industry players, including miners, portfolios, stock exchanges and payment processors.
Upon establishment, the agreement claimed the participation of 58 companies located in 22 countries, including several of the largest in the ecosystem, and 83.28% of the ore extraction. This represented the most significant push for any hard range to increase block size by far.
And although the agreement has lost a sizeable amount of this support since its first announcement, the majority of its original signatories have not officially indicated a change of position.
The second and most important difference (made even more significant by its aforementioned support) is the NYA's break from the traditional conventions concerning changes to the bitcoin protocol. This has been the source of much of the protest and protest in the community.
Unlike previous attempts to modify the Bitcoin core protocol, Segwit2x was not presented as a Bitcoin enhancement proposal, but rather through the New York Accord.
This is significant because bitcoin and all blockchains are consensus-based systems. For an incompatible change to the back to be implemented as an increase in block size, the entire bit-to-peer node-to-peer network must update its software synchronously to avoid to divide the blockchain and the ecosystem.
For this reason, it is normal and reasonable for advocates of hard forks to try to do one or the other of these two things. First, they can establish a broad consensus in the ecosystem on the need for a backward compatible change in order to avoid a confusing division of the chain. Or, if they can not create such a consensus, then they can adopt a protection against repetition – as did Bitcoin Cash – in order to split themselves cleanly into a coexisting minority chain with minimal disruption of l & # 39; ecosystem.
Segwit2x breaks this trend by refusing to adopt a protection against repetition and by failing to publicly seek and develop wider community support for the adoption of the software.
This is explained by the language of NYA's original announcement itself, which reveals a deeply erroneous premise: a consensus for such a change had already been obtained since: "The group of signed companies represents a critical mass of the bitcoin ecosystem. "
Far from the consensus
While the many large companies that initially signed on Segwit2x may seem to represent a clear consensus among the majority of the ecosystem, new developments have proved that it's all but the case.
First of all, the doubling of the block size that Segwit 2x does not exist to implement has been rejected by the vast majority of the open-source development community for technical reasons , and as such, is not merged with Bitcoin Core, Bitcoin client widely used and supported by far.
Several original signatories of the agreement have since officially abandoned their support. These include the Slush and F2Pool mining basins, which together account for nearly 13% of the hash power at the time of publication.
Exchanges have also largely recognized the "inherited" bitcoin, and after the range, Segwit2x coins will be treated as separate value units. This is contrary to the original intention and purpose of Segwit2x, which was to transparently replace the current Bitcoin protocol and the corresponding value unit.
In my opinion, these developments are sufficient to ensure that the 2x system will have little chance of catching up and replacing the traditional channel for a considerable period of time. Let's explore why.
Planned Chaos
Regardless of initial intentions, if the Segwit2x fork was to take place tomorrow, with all of its remaining signatories, the result would be a useless and ruinous debacle for bitcoin. With the strong opposition of the fork between nodes, users and developers, two chains are guaranteed to coexist and maintain a monetary value.
This is not normally a cause for alarm. However, this is not a normal case. Without repeat protection and with two channels retaining independent monetary values, the loss of funds for many users on the network will be literally inevitable due to accidental replay expenses, repeated attacks and sudden incompatibility and widespread between various software and services.
The only thing that is uncertain is the severity and permanence of such a state of affairs and the amount of damage to reputation that results.
It goes without saying that such a debacle would be extremely detrimental to the ecosystem and all its stakeholders, and is probably far from what the signers of Segwit2x had originally imagined and signed. Fortunately, the NYA is not only restrictive, but its associated "support" and "signaling" equates to little more than a waving flag.
The question of whether such proponents are willing to accept the economic consequences of the follow-up of the split since the clear division regarding the fork is a separate issue.
These companies are ultimately profit-oriented and will live or die with the ecosystem, and it is doubtful that the repercussions of a deeply controversial range without replay protection will be lost for the majority of people. Between them. That it is risky for a simple increase in the size of the block makes it an even more doubtful affair. In simple terms, the circumstances have changed dramatically since the participating companies accepted what then seemed like a safe and simple commitment.
That is why it is likely that the Segwit2x agreement will continue to lose more support before the activation date. Indeed, perhaps the only reason we have not seen this yet, is that these companies are reluctant to be among the first to give up their agreement while it is their rest of the time before acting.
By virtue of that, if Segwit2x were to be launched, it should start with a lot less support than the one currently announced. Thus, signatories face the real risk and cost of monitoring given the clear division of the ecosystem.
The market will decide
If Segwit2x were to emerge in any way, in addition to being accepted by users and the market as the "new" and superior bitcoin as it intended to do, it would will reflect in its market price. The best indication of how this price might look are coin futures markets on several stock exchanges like Bitfinex, which roughly value a future Segwit2x coin at around 15% of the value of a bitcoin.
Regardless of the initial signaling of the miners, a battle for hash power would unfold quickly between the two chains which ultimately can only be determined by profitability. Because miners ultimately have large unrecoverable and continuous costs, hash power must ultimately follow the most cost-effective chain to exploit.
But how can we be sure that this continues to be the case and that the market will continue to value the inherited Segwit2x chain, especially if an initial outflow of hash power makes the transaction times extremely slow ? What happens if, to add to this worst-case scenario, all the companies originally included have reached agreement without taking into account the risk to the ecosystem and their own reputation, and are even willing to suffer a financial loss?
A deeper analysis of the dynamics at play reveals that the NYA was flawed from the start, not only by misunderstanding the nature of the network, but by also directly ignoring what makes a bitcoin useful in the first place.
As such, Segwit2x could never have a chance to surpass Bitcoin in market value, regardless of the amount of business support.
An Imperfect Perspective
The New York agreement was only that: an agreement between the parties involved. The mistake was to believe that they collectively had the ability to change the bitcoin protocol without any additional support as they represented a critical mass of the bitcoin ecosystem.
This erroneous conclusion has two important elements.
First, there is too much emphasis on the importance of hashing power in the measurement of consensus and in the success of a range. Miners provide an essential service and are great players in the ecosystem, but they are far from the only ones. In the end, the preferences of the rest of the ecosystem are aggregated and reflected in market prices, which miners can ignore, but at a high cost that probably can not be incurred for a long time.
Secondly, and even more problematically, is Segwit2x's implicit assumption that third party services like Coinbase and BitPay can speak for their users, and can actually decide for them which token they would like to keep and use. Such thinking assumes the implicit consent of users of all these services to change the very definition of what a bitcoin is.
This goes against the very spirit of Bitcoin, which was from the beginning intended to remove the need for participants to delegate this kind of trust and power to others.
Segwit2x was organized and announced as a compromise in the bitcoin scale debate. But it is only a compromise in an archaic political sense, which naturally remains our only source of reference in terms of decentralized governance. But these same ideas and practices are not applicable in voluntary and consensus-based systems.
Modifications to the Blockchain protocol require explicit and not implicit consent. As long as the cost of validating the network is low enough for most users to have at least the opportunity to do so, it will remain true.
Third parties may believe that they can take advantage of their role as service providers and gatekeepers to work around this problem with attempts like Segwit2x, but ultimately they can not force the network validation nodes to follow. their new rules. Nor can they force their users or the general market to demand their new token.
What necessarily results from these facts is a new model of governance where politics is supplanted by voluntary association, and the concept of representation is rendered obsolete by self-sufficiency. Segwit2x is a compromise that participants never had the power or authority to do.
If Segwit2x were to succeed in being collectively labeled as bitcoin, this must be despite the disagreement of the vast majority of ecosystems of economic nodes of validation.
This would mean that the coordinated actions of a few large, visible ecosystem players could unilaterally change the rules of the bitcoin protocol, which would make bitcoin reputation a worthless, but censored, store of value.
In simple terms, if these companies manage to unilaterally change the network rules without a general consensus, then Bitcoin would have failed.
For if such a contentious change can actually be imposed on the rest of the ecosystem, other changes can also be introduced despite protests, and states that are or become hostile to bitcoin will notice it. Pressuring these visible and key businesses to influence and control the network would be a simple and trivial surface of attack.
Segwit2x seeks to provide temporary relief from transaction costs by doubling the size of the base block. But without the underlying trust in its security, resistance to change and continuity, the cost of a bitcoin transaction becomes unimportant.
He would have lost the very thing that makes it worthwhile to carry out transactions in the first place.
The great experience continues
Although at first glance the difficulty of changing the bitcoin seems to be a defect, it could not be further from the truth.
Bitcoin's resistance to change is what makes it so valuable in the first place.
Whenever this property is demonstrated, it builds confidence in the reliability and security of bitcoin and strengthens its strength as a store of value. That the network economy actively boosts this is what gives it the potential to become the safest and most reliable value store in history. But it will only fulfill such potential as it can continue to demonstrate these properties in the face of the ever greater threats to it.
2x is not the first test of this type, and it will not be the last.
The choice between Bitcoin inheritance and 2x is a choice between a continually proven and uncensored stock value, and a proven store of value compromised with temporarily lower transaction costs.
If the futures markets are an indication, then the choice for the market is easy – and the result is clear: the Segwit2x rigid fork is doomed to failure.
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which helped to arrange the Segwit2x agreement.
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