What is SegWit: Does bitcoin have a future after Segregated Witness?

The entire cryptocurrency world froze in anticipation of the upcoming Segregated Witness. Some have heard about this phenomenon, but do not fully understand its essence, others have not heard and have no idea about it, but this phrase scared investors, miners, and all Bitcoin adherents a lot. So what is segwit and why is everyone so afraid of it? Does Bitcoin have a future or will the upcoming innovations remove it from the throne or, worse, split it into several coin forks? We will try to reveal the answers to these questions in this article.

Imperfect Bitcoin

The main crypto currency, whose name is always on the list due to the constant growth of the exchange rate, is in fact not the most optimal and convenient to use. Since bitcoin appeared first, it attracted everyone's attention and did not let it go until now, but it's no secret that, according to its characteristics, it is not suitable for modern coins of the new generation either. The reason for this is a number of shortcomings that make transactions unprofitable.

First of all, the main problem of bitcoin is its scalability. We will not go deep into the technical aspect of the cryptosystem, but in general terms this phenomenon can be explained on this example. Any crypto currency works on a block (a kind of database), which consists of blocks of information. These blocks can be represented in the form of boxes, which are filled with content (information). Of course, a box can not be a black hole that can absorb a heap of everything - once the limit comes, and the more you place it in, the harder it becomes. Dragging this box from place to place will become more difficult and more difficult.

Similarly, blocks cannot be clogged with information about transactions and it becomes easier - they become heavier and start to take up too much memory. The Bitcoin network is struggling to cope with current workloads - hence the lengthy confirmation of transactions and the need for high commissions. What then to wait in a year or two? In the future, the question will come up with an edge, so his decision is an urgent matter. 

The solution

Not for the first year about the scalability problem bitcoin is known and the search for its solution is underway. Complicating the process is the fact that there has been a split in the development environment due to different points of view on this issue. Representatives of the Bitcoin Core camp believe that it is possible to reduce the block by separating the signatures of confirmed transactions from it. They will be placed outside the block, and after a certain period of time, they will be automatically deleted, which will make the transactions "easier" by weight. This is the so-called SegWit.

In fact, SegWit is the simplest solution (soft-fork), which does not affect the concept of bitcoin - from the block, they will remove the signatures that are not needed there, roughly speaking, they are a kind of garbage that the block clutters. In the end, nothing critical with the network will not happen, transactions will be faster, and everyone will be satisfied. But, a part of the developers, named Bitcoin Unlimited, believes that this problem can not be solved - the unit will remain the same size and can no longer accommodate. They propose to increase the block size twice, if necessary, to double again and so on ad infinitum. In this case, it's already about changing the protocol - that is, hard fork.

How does soft fork differ from hard fork? For example, we have an application in the smartphone. From time to time, the developers offer us to update it to the new version, thereby improving some characteristics. We can update it or not at our discretion - if the new version is not downloaded, this will not affect the ability to use the application in any way. This is soft fork - in the network of crypto-currencies there are changes for which the miners do not necessarily have to switch to new equipment. With hard fork innovations are so cardinal that without this update itself, the miner will simply stay away from the system and will not be able to use it.

Why is it so terrible hard fork?

Crypto currency is so arranged that it exists at the expense of computers, united in one common network. If there is a hard-fork of any coin, then those network members who do not download the update, from it drop out. This does not mean that they cease to be participants of any network at all - they will remain in the so-called "old version". If a large number of participants do not switch to new equipment, then the chain in the locker bisected, so in parallel with the updated coin there is also an old one, operating on the same principles.

A vivid example of hard fork, which led to the split of the coin into two, was the upgrade of Etherium, resulting in the emergence of Ethereum Classic. The situation was not entirely in the improvement of the previous ether, but that because of a mistake in the system, the hackers managed to get a lot of coins. Vitalik Buterin and his team did not think of anything better, how to make a pullback and return the coins back, for which the network and had to hard-fork. Some developers and miners considered this method not only a violation of the protocol, but also an encroachment on decentralization, so they stayed on the old software and did not accept the update. As we see, the broadcast did not suffer from this, just parallel to him there is his twin brother Ethereum Classic.

In the case of the appearance of forks of bitcoin, everyone is awestruck, because the split will affect the course of the coin. Those who hold a large number of their money in the boxes must really think about what will happen to their capital in case of the appearance of Bitcoin Classic.

The Consensus of Bitcoin Developers

The fact that the size of the block will have to be increased is a real necessity. If we have a box, then it can be filled with a certain number of items, and no more. Even resorting to soft fork, the block size will once be filled to the limit, representatives of Bitcoin Core understand this and propose to resort to segment, and in the meantime to look for other solutions. The developers could not prove their rightness to the competitors - they had to compromise and, along with issuing the signature outside the block, the size of the block itself will be increased. This decision was made at a conference in New York in May this year.

According to the terms of the agreement, to implement SegWit, support is needed in the person of 80% of miners - if the idea is supported by no less than a few participants, then in six months a hard fork will occur, which will increase the block size from 1 MB to 2 MB.

The transition to SegWit 2x will be carried out in several stages, we will not go into these details. We only note that this can lead immediately to several branches from the chain, that is, from the old good cue ball, several new bitcoins can arise at once, and then the fate of the main crypto currency will be under big question.

Consequences of SegWit 2х

Let's start with the positives. With the upgrade to the Bitcoin network, transactions will once again be fast and virtually free. At the same time, the problem of scalability will no longer arise, because the blocks will grow to the required size if necessary. All this will be in any case - whether the cue ball will split or not, its fork will have the above characteristics.

If a large number of miners do not switch to new software, they will remain in the last century and will continue to suffer from commissions and protracted confirmations. But all this will happen within the framework of some new project, there will be a so-called Bitcoin Classic or Bitcoin 2, and maybe both. And, it would seem, let them stay on the same software and exist quietly to themselves - who are they interfering with? But, there is a big minus of this phenomenon. The fact is that the coins of those miners and users - the extracted and current cue balloons - will also cross the other side of the barricades, because of what the capitalization of the updated bitcoin will drop, and hence its course.

Therefore, it is so important that the split does not happen after all, because no one wants to lose their savings and assets. Logically, with the drop in capitalization and exchange rate, many investors can pay attention to newer, better coins that already breathe bitcoin in the back. This will result in an active outflow of funds from the first crypto currency, and then, simply, there can be no need for it as such - as already noted at the beginning of the article, bitcoin does not shine with its characteristics.

This is certainly the most negative option possible, but it can not be discounted. Most experts believe that bitcoin may lose in capitalization and fall in the course, but this will be only a temporary phenomenon, after which its even more active growth is planned, as the updated coin will become an excellent tool for payments and will even begin to be more actively introduced into off-line mutual settlements.

What will in fact be learned very soon - SegWit 2x has already begun its implementation and closer to the fall its results will become obvious. But in the near future it will be possible to build some more accurate forecasts. Be sure to follow the news in the field of Crypto-currency and watch the changes in the coin's exchange rate - this will help keep the pulse of events and, if necessary, react to market behavior.