Recently there have been a series of important forks of the Bitcoin block chain. There are some important issues to understand, including why an upcoming fork has been cancelled, or at least temporarily postponed.
What is segregated witness (Segwit)?
There are many things reported in each block of the blockchain. A large part of every block, currently one megabyte of date for each block, is signatures. Signatures are important to establish that transactions are really authorised by the spending wallets, but that data takes up a lot of space. By moving the signature information out of the transaction blocks, some space is freed up to handle more transactions.
Currently, transaction processing speed is an issue, and given how much activity there is in the crypto-currency space, it makes sense for Bitcoin and other currencies to be improved with faster transaction processing. Right now Coinmarketcap.com says there are over US$200 billion in crypto-currencies in circulation, and about $9.6 billion in transaction volume over the last 24 hours. If that level of activity continued for 365 days, the global crypto-economy would be about $3.5 trillion. Germany’s economy is about $3.48 trillion every year, and is the fourth largest in the world. Making those transactions happen faster is important.
Bitcoin Cash Fork
Back in August something important happened. There was a major fork of the Bitcoin block chain, creating the new currency called Bitcoin Cash. Everyone who had Bitcoin at the time was the beneficiary of this fork, and after the fork had the same amount of Bitcoin as before (nothing changed on the existing blockchain) as well as the same amount in the new currency Bitcoin Cash. Bitcoin Cash distinguishes itself by having a much larger block size, 8 megabytes, and does not implement Segwit.
One of the expected outcomes from the August fork was that some people would choose to prefer Bitcoin Cash and others the original Bitcoin, and the outcome would potentially be a zero sum game – one gets bigger at the expense of the other. But something else happened, related to a phenomenon called “the casino effect.” Instead of the two currencies sharing the total market, both gained in value. Bitcoin’s price went up and total market cap became greater, and the total value of both Bitcoin and Bitcoin Cash was greater than before the fork.
Bitcoin Gold Fork
Another fork was planned to implement a new currency called Bitcoin Gold. Its main distinction is that it uses the Equihash protocol, making it possible to mine new blocks using ordinary CPU processing, and makes it hard to customise application specific integrated circuit (ASIC) chips for Bitcoin Gold. Arguably that would make mining more widely decentralised. Again, people holding Bitcoin before the fork were able to have both their Bitcoin and the same amount of Bitcoin Gold after the fork.
Also back in August people were anticipating the addition of Segwit2x in yet another fork to happen about 8 days from now. The distinguishing feature here was that Segwit would be implemented, and the block size would go from one megabyte to two megabytes. However, owing to a lack of enthusiasm for this scheduled fork, it has been cancelled. Not enough of the users, including miners, of the Bitcoin block chain were going to implement the new protocol, so the developers have postponed indefinitely their fork.
When a fork happens, if you continue using the existing protocol, nothing much changes for you. You may have the opportunity to benefit from the fork, as when a new company would be spun off from an existing stock on the legacy stock market. You also have the option to take the other path of the fork, and use the new crypto-currency that comes into existence. Forks should represent attempts to improve the software and make things better. But not all forks that are planned actually take place.