Despite its growth in the past couple of years, bitcoin has recently been depreciating, due to an uncertain future which was caused by a dispute between its major players. As Segwit2x looms, bitcoin investors and traders are filled with worry and dread, asking, is it time to cash out?
Bitcoin has grown at an unprecedented rate for the past three years (from less than $300/USD to over $3000/USD) and just when people start talking about becoming millionaires overnight, things seem to have hit a snag.
Bitcoin has seen much success recently because of what it offers, something conventional financial institutions can't. Its technology provides a secure payment platform, that is decentralized and doesn't allow third parties to tamper with your funds.
That's why it has been embraced by so many people all over the world, governments included. This success, however, is what is threatening its future.
The growing popularity and acceptance of bitcoin all over the world has led to a tremendous increase in the number of users. This has led to an increase in activities on the network and transactions too, which in turn is causing an increase in transaction times and fees, curtailing bitcoin's ability to process payments with the same fluidity as MasterCard and other payment options.
The very problems are what bitcoin was created to get rid of in the first place.
Bitcoin was created using blockchain technology with each block containing transaction information as well as identities of users and time stamps. The recent popularity and increased use (in simple terms) have caused these blocks to be filled, resulting in the increased fees and lag.
Different camps have sought to solve these problems, and many proposals have been put forward. Over time two opposing camps have come up with two upgrades which propose to make Bitcoin faster and transactions less expensive.
On one side are the miners, mostly based in Asia, who use powerful million dollar machines to mine bitcoin. They propose increasing the size of the bitcoin block to accommodate more information, thereby making things faster and cheaper.
On the other side are the developers, who are responsible for upholding bitcoin's bug-proof software. They prefer to have some of the information in the bitcoin block moved to another server or block, which they say will reduce congestion as well as allow smart contacts and other smarts to be built on bitcoin.
This proposal is called SegWit, which stands for segregated witness.
However, SegWit, the act of moving data away from the blockchain reduces the influence of miners to an extent, something miners don't want. This is the origin of the conflict
Wu Jihan is the co-founder of Antpool, the largest mining organization, based in China. He was (and still is, to some extent) one of SegWit's most vocal opponents.
“SegWit is itself a great technology, but the reason it hasn’t taken off is that its interest doesn’t align with miners,” he said after the proposal was announced.
Nevertheless, both groups are keen on reaching an agreement, and some miners have compromised to support SegWit in return for an increase in bitcoin block size. According to Wu, the plan will get rid of congestion for the main time until a lasting solution is discovered.
This negotiated agreement is known as SegWit2x- it implements SegWit and doubles the size of the bitcoin block. However, not all miners and developers have agreed to implement the software.
Some miners are opposed to losing their influence on bitcoin, and some developers say the proposal is too sudden and rushed.
Currently, about 85% of miners say they will implement SegWit when it launches on July 21, and some big players have opted in as well, compelled by the rising popularity of Ethereum, another cryptocurrency which is threatening to outshine bitcoin.
However, some developers are pushing another agenda called UASF (user activated soft fork), which will reject transactions not compliant with SegWit by August 1st. Events after these two dates- July 21 and August 1st- will determine the future of bitcoin.
When SegWit is released on July 21, the community will monitor the market and if more than 80% of miners adopt it there won't be a problem as it signifies a wide acceptance. If not, there'll be angst and anxiety as it spells trouble, and the community will be nervously anticipating August 1st.
When the 1st of August arrives, and supporters of UASF deploy the technology, the community will monitor the market and if miners still don't comply there'll be a split. There'll be two versions of bitcoin existing on the same blockchain- one which supports UASF and recognizes SegWit transactions and another which doesn't.
If this happens, there'll be massive volatility with traders choosing sides and re-pricing both versions of the cryptocurrency.
This uncertainty is arguably part of the reason bitcoin has been depreciating for the past few weeks. Investors and traders dislike uncertainty with any currency or stock.
Unless the bitcoin players come to a solid agreement, SegWit2x could be the beginning of the end.