With Bitcoin set to fork near the beginning of August, it’s amazing to see the panic slowly spreading across the throngs of Bitcoin users. There are many perspectives on the matter and all of them become heated under scrutiny.
Let’s take a breath, shall we?
A good friend and technology wizard known as Zodiac from Bitvest.io wrote a beautiful explanation of technical details and terminology. It says:
“WHAT THE FORK? BIPS, FORKS, SEGWIT, UASF, AND NYA?“
BIP: Bitcoin Improvement Proposals are the method to implement new features in Bitcoin. They may also be informational documents or describe new processes external to the protocol, e.g.: modifications to the BIP system itself. Each BIP is given its own number to identify which it is. For example, BIP141 is the BIP# for SegWit.
Forks: A fork is where a blockchain splits into two pieces (forks) at a certain block. Usually, only one fork lives on, but it is possible for multiple to exist.
There are two major types of forks used to upgrade Bitcoin. Hard forks which make the rules more lenient and are backward incompatible requiring all users and nodes to upgrade their software. There are also soft forks, the safer method of forking by making rules stricter, leaving old clients and wallets compatible, but are simply lacking the new features.
SegWit: Segregated Witness is a BIP which increases network capacity, security, and scalability through a soft fork. SegWit comes with a lot of new functionalities and fixes besides the block size such as malleability fix which enables the creation of second layer networks like the Lightning Network.
UASF: User Activated Soft forks are a way for the economic majority, along with a small percentage of miners to force the majority of miners to accept a protocol upgrade. The goal of a UASF is to soft fork the chain and have all economic activity occur on the upgraded fork, devaluing the coins on the other fork. In theory, this will incentivize miners to mine the more profitable fork, as the only coins which have value are the ones which users accept and trade.
NYA/SegWit2x: The New York Agreement proposes an upgrade to the network activating SegWit through a different soft fork bit incompatible with BIP141, then a hard fork within three months to 2MB. This would raise network capacity about four-fold in practice. 2x for SegWit itself and 2x for 2MB (hence the name).
While the promise of increasing to twice the capacity of SegWit alone may sound good, this is not without technical issues. Being a hard fork itself makes NYA/SegWit2x a potentially dangerous upgrade path. It is also seen as a potentially undesirable outcome due to the aggressive timeframe that the 2MB hard fork is set to occur in.”
Read the whole piece here: Zodiac’s The Forkening
The most important thing to consider as the upcoming fork approaches is the storage of your Bitcoin stash.
If your coins are managed by someone say in an investment scenario, ask the admins a few questions. Check the list below and find a comfortable position for you and your coins.
What’s the plan for my Bitcoin supply before, during and after the fork?
Which Chain will my BTC follow if I keep my coins in your care? The answer should be something like “The economic majority and the most profitable or most safe surviving chain will be the choice to follow”.
What can I do to protect the value of my coins? There should be an answer. It doesn’t have to be pretty language or a fancy, perfect pitch but there needs to be a clearly defined plan.
Depending on the results you get, you may decide to take an alternate route with your Bitcoin. If you feel unsteady or unsure AT ALL about the hands your bitcoin is resting in, you can either withdraw to a self controlled wallet until the dust settles or exchange your Bitcoin into a few different altcoins if you wish, until the fork has taken place.
Don’t panic. Just calmly determine what is right for you and your Bitcoin.