Among cryptocurrency enthusiasts, Nov. 16, 2017, was supposed to go down as a critical, though controversial, milestone. This was when a Bitcoin hard fork to end all hard forks, known as “SegWit2x,” was to debut.
For hardcore crypto proponents, SegWit2x was the answer to Bitcoin’s scalability problem. For the lay investor, it was a chance to make “free money.” However, all these hopes are now on hold indefinitely as the hard fork was cancelled.
During the original cryptocurrency’s inception, few could anticipate the dramatic rise in Bitcoin prices, nor could they foresee the integration.
Several years ago, digital tokens was merely a homemade science experiment. The idea was to see if value could be transmitted from one party to another without requiring a third-party intermediary. Obviously, the concept worked.
However, the virtual currency’s limited scope to handle mass transaction volume eventually stymied progress.
Early on, the limitation didn’t matter. But as Bitcoin prices rocketed into four-digit territory, its vulnerabilities shined bright. Crypto programmers, miners, investors and other vested parties debated the best course of action. An influential group decided that a Bitcoin hard fork was necessary; thus, SegWit2x was born.
SegWit2x is actually the second phase of a two-stage process known as Segregated Witness, or SegWit for short. The first SegWit phase occurred back in August of this year in the form of a soft fork. As the name suggests, it’s a softer, less-intrusive change to the underlying blockchain architecture.
The soft fork created tremendous improvements in the Bitcoin blockchain. Most notably, transaction speed accelerated, thanks to the newly created ability to conduct some transactions outside the normal blockchain pathway. Many, if not most, appreciated the changes. However, the scalability problem remained, and therefore, SegWit2x proponents pushed for the ultimate Bitcoin hard fork.
SegWit2x Carried Too Many Risks
In the run-up to the go-live date, prominent cryptocurrency wallets and exchanges supported SegWit2x. The most important barometer, Bitcoin prices, enjoyed robust gains after briefly correcting in the aftermath of the Bitcoin Cash hard fork.
Furthermore, “regular” cryptocurrency investors were excited about SegWit2x for the guaranteed payout, or free money as I call it. The last major Bitcoin hard fork spawned the Bitcoin Cash cryptocurrency, which many crypto institutions supported. As a result of the hard fork, investors who held Bitcoin in supported channels received an equivalent number of Bitcoin Cash.
Since Bitcoin Cash once challenged four-digits (and is currently at $675), it was a nice little bonus! Naturally, those who missed the boat on Bitcoin Cash wanted to get in on SegWit2x.
Unfortunately for these speculators, doubts crept into the broader crypto community. Unlike any other Bitcoin hard fork, SegWit2x would have pushed paradigm-shifting changes that only half the community supported. Inevitably, we were facing two pathways; one for SegWit2x, and the other for the original blockchain.
For those looking for the free money, the now-cancelled Bitcoin hard fork appeared like a win-win situation. But as InvestorPlace contributor Dana Blankenhorn argued, it’s anything but. By constantly hardforking the blockchain, we lose the cryptocurrency concept’s integrity. Hard changes can be arbitrarily made by powerful voices, thus turning Bitcoin into a dictatorship, not a decentralized network.
From an economic perspective, had SegWit2x gone live, three major Bitcoins would butt heads with one another. In other words, the Bitcoin brand name’s supply would triple, leading to substantial dilution.
As you might imagine, that doesn’t sit well with Bitcoin’s long-time investors and developers. They view the digital token as a store of wealth. Diluting the supply of the virtual currency would unfairly penalize investors.
The Failed Bitcoin Hard Fork Makes Way for Blockchain Stability
While the Bitcoin hard fork cancellation is undoubtedly disappointing for so many speculators, in the long run, it’s the right decision.
First, SegWit2x is proof that decentralization works. While its promoters could have pushed through, they had to listen to growing criticism. As the voices grew louder, they realized that even if they were right, they would eventually be wrong. A scaled, more efficient Bitcoin would come at the cost of a fractured community. The juice wasn’t worth the squeeze.
Second, Bitcoin’s core identity is secure for now, which will have tremendously positive implications. One of the reasons why outsiders fear digital tokens is that they’re seemingly unstable. Over the past year, Bitcoin prices swayed dramatically; some like trading the volatility, but most do not. Because the core Bitcoin is under one umbrella, it makes wider acceptability more palatable.
Third, the holy grail, or Bitcoin prices at $10,000, is now more than a possibility — it’s a probability. As countless analysts have argued about non-crypto related assets, the markets trade on psychological factors. We humans love big, round numbers, and for Bitcoin, this translates to $10,000.
Moreover, without SegWit2x generating headwinds and uncertainties, the underlying cryptocurrency can get back to the basics. With essentially a fresh start, Bitcoin can potentially take out this lofty target inside of one year.
As of this writing, Josh Enomoto is long Bitcoin.