Segregated Witness (Segwit) and BitcoinCASH (BCH)

“Segregated Witness” or Segwit gave rise, consequentially, to the new BitcoinCASH. This was a major change for the blockchain world. If you had Bitcoin in your wallet on August 1, 2017, you now likely have both Bitcoin and the new BitcoinCASH in that same wallet. Here is a bit of technical background.

Since it began in 2010, each Bitcoin transaction has consisted of three key elements:

Main Block

  1. Sender details or input
  2. Receiver details or output
  3. Digital signature

The digital signature is extremely important because it shows whether the sender has available funds. However, this data section is very large and accounts for nearly sixty-five percent of the total main block space.

The original Bitcoin structure, limited this block size to 1MB. The developers planned this size to cut down on spam transactions. Unfortunately, the 1MB number has restricted Bitcoin to a maximum of about 4.4 Bitcoin transactions per second and caused overall delays in processing transactions. If you paid the lowest possible transaction fee, the median wait time for processing the payment was around thirteen minutes and sometimes much longer.

Dr. Peter Wuille came up with a solution called Segregated Witness aka Segwit. His solution was to remove the signature data from the main block, opening up more transaction space, and deposit that data in a new external block called the “Extended Block;” which was connected to that main block. Consequently, a new Segwit transaction consists of these elements:

Main Block

  1. Sender details or input
  2. Receiver details or output

Extended Block

  1. Digital signature

In simple terms his solution took all of the dining room furniture out of the main house and stored it in a POD next to the house; thus creating more inside space.

Pros of Segwit

  • Reduces the size of each individual transaction
  • Increases the number of transactions accepted by a block
  • Transactions are confirmed faster with decreased waiting time
  • Decreased individual transaction fees
  • Helps with Bitcoin scalability
  • Changed the calculation of the signature hash making process more efficient
  • Aids in the activation of lightning protocol
  • Removes the quadratic hashing problem that accompanies a larger block size

Cons of Segwit

  • Miners will now get smaller fees for each individual transaction
  • All different wallets will need this complex change creating the significant possibility of errors
  • Noting the rise in capacity, operations, and bandwidth, Segwit creates an increased resource usage
  • Differences of opinion have split up the Bitcoin community
  • Increased maintenance issue for miners from the new “signature data block” side chain

Of course, all of this activity did not occur without a huge industry discussion, a lot of name calling and some angry miners. To solve the scalability issues, there were two suggestions made, a hard fork and a soft fork.

A fork is a split that translates into a divergence of the blockchain. Users envision the soft fork as a software update that is backward compatible. The alternative hard fork is a bigger change that it is not backward compatible.

UASF

Most of the discussion and name calling centered around a Bitcoin Improvement Proposal or “BIP” which is a document that introduces various designs and improvements to the Bitcoin network. BIP148 was a User Activated Soft Fork aka UASF. It said that full nodes of the Bitcoin network should reject all blocks being generated without Segwit. The concept was to motivate miners towards adding Segwit activation to their blocks.

UAHF

The other blockchain discussion centered around a User Activated Hard Fork aka UAHF. This change was a proposal for the construction of a new form of Bitcoin (a fork) with a larger block size. A hard fork would mean that the new blockchain was not compatible with the previous one; it was a new start. A primary helpful feature of the UAHF was that it did not need a majority of hashpower to be enforced. Any nodes that accepted these changes just followed the new blockchain regardless.

Since August 1, 2017, this resulting new UAHF blockchain has been  known as “Bitcoin Cash.”

As you may have guessed, Bitcoin Cash (BCH) is very similar to the original Bitcoin except the block size is now 8 MB, it has no Segwit, and no “replace by fee” feature. However, BCH does have replay and wipe out protection, plus a way to more quickly adjust the proof-of-work difficulty, which is an improvement over the regular Bitcoin 2016 block difficulty adjustment interval.

Bonus?

Since BCH is a result of a hardfork, anyone holding BTC received an equal amount of coins in BCH; under certain conditions. The “hardfork bonus” terms meant that you could receive the new BCH if any exchange or agent did not hold your old BTC and you were in possession of your private keys at the time of the hardfork.

If you were storing your Bitcoin with an agent like Coinbase, you would not receive any shiny new BCH coins.

On August 1, 2017, Bitcoin went through the “UAHF” hardfork which gave birth to Bitcoin Cash. This new BCH blockchain network is showing potential to be a long term Bitcoin alternative.

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