For most of the Segwit 2x debate I was on the sidelines, frankly. I didn’t really care what was happening because I didn’t truly understand the politics of the situation. And I freely admit that.
In recent days, however, it became clear to me that Segwit 2x was nothing more than an attempt to centralize control of the Bitcoin blockchain by forces too close to the power structure on Wall St. And it was the all-or-nothing aspect of this that made me take notice.
For those unfamiliar with the situation I’ll catch you up to speed in layman’s terms.
Segwit stands for Segregated Witness. And it is simply a way to strip out a lot of extraneous header information from the main Bitcoin blockchain to be processed separately. Lots of other cryptocurrencies use Segwit. It, in and of itself, is neither good nor bad. It’s a potential design feature of a cryptocurrency.
The problem was that the people pushing Segwit 2x – where both Segwit was implemented and the block size doubled from one megabyte to two – were demanding that this be the only Bitcoin blockchain going forward.
There would be no parallel chain issuing different tokens after the 18th of this month.
This is what happened back in July when Segwit was added to the Bitcoin software. A group of miners didn’t want Segwit at all and decided to do a User Activated Soft Fork, UASF, that created Bitcoin Cash.
The analogous event in the corporate world (though not completely) would be Conoco-Philips splitting out its refinery business into Philips 66. Now there is Bitcoin and Bitcoin Cash. Two separate networks operating different software.
The promulgators of Segwit 2x demanded to force the issue and force all the current miners to support it by refusing to implement ‘replay protection’ which is simply a means to prevent someone from writing transactions to both blockchains and, in effect, double dip.
In other words, counterfeiting protection.
By refusing to allow for a UASF, the backers of Segwit 2x decided to go for broke.
And their bluff got busted. In the end they had to abandon their quest for this as the number of miners who supported them weren’t enough to keep chaos from ensuing and possibly destroying the market’s faith in Bitcoin altogether.
In essence, there was no reason for this hard fork to be so contentious. It could have been like scenario surrounding Bitcoin Cash back in July. Those that wanted a different Bitcoin, could simply fork the blockchain and begin issuing their own tokens.
May the best token win.
But, that was not the case with Segwit 2x.
Now that Segwit 2x has been cancelled it is clear to me that the whole cryptocurrency community dodged a major bullet. I am skeptical of the CME Group’s (CME) announcement of Bitcoin futures.
And the timing of both Segwit 2x and this announcement by CME Group seems a little too cozy for my tastes. Because, like the Segwit 2x crowd, the CME Group could have announced a real futures contract for Bitcoins, i.e. one settled in Bitcoins.
But, they didn’t. They announced a ‘cash-settled’ contract which, in effect, creates a supply of synthetic Bitcoins which can use dollars as a derivative to affect the settlement price of Bitcoins.
With Segwit 2x failing, transaction density on the Bitcoin network will remain low, which leaves more room for other coins to find market share in the near future. And it means that capital within the cryptocurrency space will not be further rolled back into Bitcoin as has been the case over the past few weeks the closer we got to the Segwit doomsday.
One of the biggest investor concerns I hear about Bitcoin and cryptocurrencies in general is the worry that the governments will come in to control them or just shut them down. Well, considering that a lot of people didn’t want Segwit 2x, the demand that by its backers, regardless of their intentions, there could only be one Bitcoin was the proposal’s undoing.
The Altcoin Response
In the wake of the announcement Bitcoin hit a high of nearly $7900. There was a lot of volatility in the those first few hours. But, once the news settled in and it was obvious that Bitcoin was not going to increase its block size, the price of Bitcoin settled back to $7100.
But we saw major moves in alt-coins that had been languishing in the shadow of the Segwit 2x fight.
Here’s a chart of the moves made by a number of alt-coins in the past 48 hours:
Some, like Monero and Litecoin began breaking out of bases 15% to 20% below the 11/7 levels over the weekend. Litecoin, for example was trading between $51.50 and $54 while Monero hit a low of $84.92 on Saturday.
Bitcoin Cash more than doubled during the past week breaking out a base below $330 on October October 27th to hit a high over $700 a few days later. The market clearly began handicapping the failure of Segwit 2x. I informed my subscribers of this in a blog post on October 28th when Bitcoin cash was breaking through $400. Since many of them were holding Bitcoin, I wanted them to be hedged into Bitcoin Cash in case of this exact event.
I would expect these moves are the beginning of much bigger advances now that the uncertainty overhanging Bitcoin’s future is out of the way. Investors hate uncertainty. And, adding to that the parallel universe of the crypto-space only makes that uncertainty worse.
Moreover, what this does is prove, like with Bitcoin Cash, that a difference of opinion in the markets is best settled amicably versus dictatorially. Markets are ultimately self-governing systems. And those that attempt to control them invariably lose in the long run.
This failure by Segwit 2x was three years in the making as too many people attempted to dictate the future versus allowing it to come to them organically. And because of it I feel the entire crypto-community is stronger today even if Bitcoin’s future has been weakened somewhat.