How Exchanges are Handling SegWit
The cryptocurrency has been flooded with news related to the upcoming SegWit, or Segregated Witness, controversy that is expected to come to a head in the next week. SegWit is a solution to one of the only problems that is evident with bitcoin: it doesn’t scale well. Right now, Bitcoin has a relatively small adoption rate and isn’t being used by that many people. If it were to hit the mainstream in some way, there would be major issues with the way it operates.
Any Problems with Bitcoin?
The issues come from the fact that each block (update) can only handle 1 megabyte of transactions and these are executed every 10 minutes. There will eventually be a point where Bitcoin is being transacted so much that this is a problem, and the engineers are wisely trying to solve the problem before it ever surfaces. Popularity would effectively kill Bitcoin by taking away its ability to properly operate, and that needs to be fixed.
Like with any issue where there are multiple potential solutions, a political divide has emerged in the Bitcoin world over what should be done to fix the problem. Both sides have submitted solutions that can basically be simplified down to the idea of either increasing the size of a block or increasing the number of transactions that can be done in 10 minutes.
SegWit was proposed as a BIP (Bitcoin Improvement Proposal) that would hopefully solve all the problems by implementing a method of speeding up the time it takes to perform a transaction. This would have the system checking the signatures in a much more efficient way. SegWit was the core of BIP 148, which was an essentially an updated version of BIP 141, the first attempt to push SegWit through.
Bitcoin is at the Crossroads
Market has seen a wide range in the prices of Bitcoin over the last few weeks as it has become a very emotional bet. Many think that this could be a tough problem for Bitcoin as we know it because of the possibility of a user activated soft fork (UASF) occurring. A UASF is a vote of non-confidence in the simplest terms. If a majority cannot be achieved with the newest vote then the entire Bitcoin will split into two different coins going forward.
The original attempt to push SegWit through was BIP 141, but it required a supermajority of 95% which proved to be unreachable for the Bitcoin mining community. The miners are in the most control here as they are able to signal what their vote is by including a certain value in a bit within the blocks they mine. In this way, the miners act a lot like the Federal Reserve, but act in a much more democratic model than having 8 non-elected members of a committee voting.
When BIP 141 failed to go through, two options were proposed. The first was BIP 148, which will automatically be implemented on August 1st if nothing happens. If it is automatically implemented, then two different coins will be created. There will be the coins that have elected to use SegWit and there will be the coins that didn’t. This decision by default will result in a situation where the coins will no longer be compatible and two different ecosystems will have to emerge.
The hope is that a UASF can be avoided by having a majority of miners vote to implement BIP 91 by July 30th. BIP 91 manages to straddle the two positions in the debate by both increasing the block size and speeding up the transactions. It will not be clear whether this has worked until July 30th, but the hope is that any fracturing of Bitcoin can be avoided.
BIP 91 vs BIP 148
So overall, there are two possibilities: BIP 91 could be implemented, BIP 148 is implemented and the fork goes without problem, or BIP 148 is implemented and the whole system crashes. As we all know, no matter how well-designed computers are, there are always unforeseen issues that can occur, and to assume that engineers have outsmarted the system and found a way to avoid any sort of hiccup with the system is foolhardy. The market dynamics on CEX.IO have reflected this as we have seen huge fluctuations in the price of Bitcoin, which is essentially a signal that no one knows what is going to happen.
The main worry for everyone is that a UASF will occur and the trading system will not be well enough equipped to handle any of the issues that occur when a brand new currency is created on the go.
Hopefully, SegWit is likely to be activated soon, putting an end to the protracted dispute. Already a large portion of the blocks have voted in favor of BIP 91, resulting in its lock-in. But it is unclear as to when it will be decided to finalize SegWit and we will only know when we reach August 1st.
CEX.IO is on the Alert
CEX.IO has come up with a solution that should avoid most of the pressing issues. First of all, users should not be concerned that there is a problem with the trading platform if they see major swings in the prices of Bitcoin. This is natural in a time like this and will not affect the long-term value of your cryptocurrency.
The ability to split your coins is a service that will be offered on CEX.IO for all who are interested. Splitting your coins can be complicated and CEX.IO is more prepared than the average individual to take care of this issue.
If your coins are split, you will end up with two different wallets and private keys; one for each coin. CEX.IO has done a lot to prepare for the changes and we are confident that we have adequately prepared for the SegWit.
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