What Is SegWit2x & Recommendations for Users During the Fork

What is SegWit2x

The extremely contentious SegWit2x software update for Bitcoin was proposed in 2017 as a solution to the network’s scaling issues. Even though it was never put into practice, its history demonstrates important facets of Bitcoin’s governance and the value of decentralized consensus.

This is a thorough analysis of SegWit2x:

The Problem SegWit2x Aimed to Solve

By 2017, there were serious scaling issues with Bitcoin:

• Limited Ability to Transact Because of its design, the network could only execute 3–7 transactions per second (TPS) due to its 1 MB block size constraint and around 10-minute block period.
• Increasing Charges and Hold-Ups Transaction costs went up and transactions frequently took longer during times of heavy demand. As Bitcoin’s popularity increased, this “bottleneck” became a serious worry.

Two primary strategies were developed to deal with these problems: those that supported raising the block size limit (on-chain scaling) and those that favoured efficiency gains using additional methods such as layer-2 solutions and Segregated Witness (SegWit) (off-chain scaling).

The New York Agreement (NYA) and its Two Phases

The New York Agreement (NYA) in May 2017 served as the impetus for SegWit2x, an effort to reconcile the scaling controversy. Aiming to “bring peace to the ‘block size wars'” by incorporating both scaling options, the NYA was signed by more than 50 miners and companies who said they represented a significant portion of the network’s hash power and economic activity.

There were two primary parts to the plan:

Phase 1: Segregated Witness (SegWit)

What it is: August 2017 saw the activation of the protocol improvement known as Segregated Witness (SegWit) (BIP141). Because it was executed as a soft fork, the blockchain remained intact and it was backward-compatible.

Phase 2: 2x Block Size Increase

What it is: The main idea behind SegWit2x was to directly increase the Bitcoin block size limit from 1 MB to 2 MB through a hard fork.

The plan: About three months after SegWit was activated, on or around November 16, 2017, the SegWit2x code was supposed to enable the 2 MB block size. “SegWit + doubling the block size” is the literal origin of the moniker “SegWit2x”.

Purpose: Larger blocks were supposed to immediately permit more transactions per block, which would further alleviate congestion and lower fees.

Why SegWit2x Was Controversial

Major corporations and miners who joined the NYA supported SegWit2x, however it encountered fierce criticism and was eventually cancelled. A number of important concerns gave rise to the controversy:

Governance and Consensus Issues:

• Many people believed that miners and corporations made the decision “behind closed doors” without getting enough feedback from the general public.
• Numerous Bitcoin developers, users, and node operators believed that the general public did not agree with it. Developers contended that a more decentralized consensus process, rather than a top-down agreement, should lead to significant modifications to the Bitcoin system.

Hard Fork Nature and Potential for Chain Split:

• SegWit2x, a hard fork, was a modification to the Bitcoin protocol that was incompatible with earlier versions. It would probably result in two rival blockchains and cryptocurrencies if it were implemented without broad support, which may lead to uncertainty, confusion, and even devaluation of both.

Lack of Replay Protection:

• The SegWit2x code’s original lack of required replay protection was a major source of criticism. Without it, transactions on one chain might be “replayed” on the other, which might cause users to lose money or inadvertently spend coins on both chains.

Centralization Concerns:

• Many node operators and developers of the Bitcoin Core were among the opponents who claimed that expanding the block size would raise the amount of storage and bandwidth needed to run a complete node. This would undermine the fundamental decentralization tenet of Bitcoin by making it more costly and difficult for people to operate nodes, possibly moving power towards larger mining operations and enterprises.

Questioning its Necessity:

• Because SegWit had previously achieved variable block sizes up to about 4 MB (via weight units), depending on transaction sizes, some claimed that SegWit2x was superfluous.

“Bitcoin” Brand Identity: Both sides believed they represented the “true” Bitcoin, and there was a heated ideological dispute over which chain would keep the “Bitcoin” name and brand in the event of a split.

The Cancellation and Aftermath

Cancellation: Businesses and miners (at first over 80%) provided strong backing, but the increasing opposition from the general public was too powerful. The SegWit2x effort’s founders declared its cancellation on November 8, 2017, a few days before the planned hard fork, citing a lack of agreement and concern about harming Bitcoin. It would “divide the community and be a setback to Bitcoin’s growth” if they persisted.

Technical Failures (for those who tried to proceed): Despite the cancellation, some parties planned to move forward. A permanent halt was reached, nonetheless, when SegWit2x nodes split on November 17 because of a block height-related “off-by-one coding error” that caused them to stall.

Post-Cancellation Landscape: SegWit allowed Bitcoin to continue using a base block size of 1 MB. Since Bitcoin Cash (BCH) had already split off from Bitcoin in August 2017 with an 8 MB block size, most people who still wanted larger blocks switched to BCH. The discussion brought to light how vital consensus and decentralisation are to the governance of Bitcoin.

Recommendations for Users During the Fork (Contextual)

Before the scheduled hard fork, users were instructed to:

Avoid transacting: To prevent any money loss via replay attacks or network disruption, it was advised to avoid making any transactions during the event.

Update wallets/firmware: Because new software would be required to process transactions on a future Bitcoin-2x chain or to split coins, users were encouraged to update their hardware wallets (such as Ledger Nano).

Coin Splitting: In order to avoid transaction replay the unintentional replaying of a transaction on one chain on another users who valued both possible chains would have to split their coins. To help with this procedure, tools were planned.

SegWit2x was essentially a huge renovation proposal for a well-liked but sluggish public transport system. While some favored optimizing the current lanes and traffic signals (SegWit) to boost the efficiency of the current system, others wanted to construct more lanes (larger blocks) to immediately increase capacity. A significant section of the public, particularly engineers and regular users, felt the compromise was made without their genuine input, feared it would make the system too centralized, and were concerned that it might split the transport network into two incompatible systems, causing chaos. This is why the SegWit2x proposal, which was a compromise to do both, ultimately failed. The “optimization” (SegWit) ultimately succeeded, but the “expansion” plan (SegWit2x) was shelved because of disagreement.

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