SegWit: The Catalyst for Bitcoin Cash

In its early days, bitcoin served a tiny community of curious users and developers by providing a small, decentralized peer-to-peer currency exchange. The platform underpinning bitcoin’s introduction is better known as blockchain technology, on which users can control and share their data with the utmost integrity. At its inception, the main participants in this community were developers who would mine thousands of bitcoins a day on their home computers while contributing to the currency’s open source code. Nowadays, things are much different than anyone would have originally imagined.

Today, blockchain technology is spreading across the globe as developers harness its unique attributes to improve a wide range of applications. This proliferation has helped bitcoin significantly in terms of growing its market value and achieving popularity among users and traders alike. Though many are rooting for its success, not everyone is accepting of the proposed changes. This fact often leads to tense debates regarding the future of the digital cryptocurrency, the most significant of which was the SegWit (Segregated Witness) issue.

Segregated Witness

An important debate regarding the scaling of bitcoin put developers and industry influencers on both ends of the spectrum. Some argued that the scaling should take place on the blockchain itself, requiring a more adjustable block size limit, which would lead to a bigger blockchain than the one currently hosting bitcoin. Others, however, supported maintaining the existing blockchain and scaling bitcoin’s functionality by adding layers of auxiliary services like the Lightning Network.

SegWit was originally a software upgrade designed to promote the second camp’s stance by decreasing the space that individual transactions take up on a single block. This enabled bitcoin to be faster and the blockchain’s node to run on regular computers as well. Though the idea seems simple enough, it stirred up quite the controversy.

Some believed that increasing the volume of blocks would impose higher costs and a slower, limited network (at least until second layer solutions were released), and so condemned the idea because it intentionally limits a major application of blockchain in the short term. The main argument was that bitcoin and its network could crash under an influx of data at any moment. However, a hard fork without any precedents was viewed as a very risky proposition for an industry still very much in its infancy.

Bitcoin cash went for scaling cryptocurrency on the blockchain itself by increasing the block size limit to 8MB. This allowed for more data alongside bigger blockchains, and managed to avoid what many in bitcoin pioneers feared. The newer bitcoin cash model managed to be quicker and more user friendly when compared to its predecessor. However, the nodes now run the risk of becoming too big to run on a regular computer, instead finding itself becoming centralized at the hands of those who have the proper hardware. Both camps approached the same issue, and came up with two opposing answers.

The Big Split

The event tied to the launch of the bitcoin cash was the hard fork that occurred on August 1st, 2017. A hard fork is when the blockchain’s protocol undergoes a radical, irreversible change. All formerly invalid blocks and transactions are then made valid, and vice versa. This requires all node users to install and update their computers to handle the new software protocol. The new and old blockchains were then separated by this fork.

The hard fork was bitcoin cash’s only chance at launch, as disagreement raging between its camp and bitcoin’s proponents had resulted in a standstill. A soft fork puts miners at the center of the debate by asking them to “vote”, by signaling for either algorithm with their machinery, but it didn’t pan out. Regardless, the bitcoin cash community would have never agreed to anything other than complete segregation, and this would have created a backwards compatibility with bitcoin’s existing algorithm and the new version’s algorithm. Such a compromise left a bad taste in the mouths of both parties, and so the hard fork went ahead.

Once participants embraced bitcoin cash, the cryptocurrency rose in market value due to public interest. One of the major benefits that emerged was the opportunity for participants to switch between algorithms on their machines when mining, enabling them to maximize profits as both were SHA-256 compatible. This algorithm is associated with SHA 2 (Security Hash Algorithm) hash functions, which were created by the NSA. Cryptographic hash functions are mathematical operations which run on digital data. Hashing happens when the output from the execution of an algorithm is compared to a known value, thus determining the data’s integrity.

The effects of the hard fork and migration from bitcoin to bitcoin cash are easy to notice, as more individuals join the younger community due to its improvements over the original. Consequently, bitcoin is being viewed more within the frame of an asset as bitcoin cash fulfills more of the requirements of a true currency.

A Fork in the Road

This cryptocurrency rivalry is not different from new ideas in other industries where people divide into camps, as they are unable to agree on one appropriate course of action. Thomas Edison and Nikola Tesla, two of the world’s most famous inventors, waged the War of the Currents in 1880s. The two could not agree on which system was best suited to provide power, Edison’s direct current or Tesla’s alternating current.

Though SegWit was the force that drove developers towards a separation, the results have not been negative. The bitcoin cash community came up with an appropriate alternative that supports its version of bitcoin’s purpose. This kind of creativity is the very attribute that will help drive innovation in the whole cryptocurrency field, enhancing it as it progresses. The bottom line is that competition can be healthy for an industry, as new ideas come to life through novel solutions.