Although bitcoin investors were eagerly anticipating the introduction of the long-awaited SegWit2x fork, which was designed to split the chain once again, the event was canceled amid raging disagreements within the community. While some community members believed bigger blocks are needed to strengthen the currency function of bitcoin, traditionalists argued it would reduce bitcoin’s crucial decentralization attribute. In the end, the inability to form a consensus led to the cancellation of SegWit2x, spurring substantial gains in bitcoin’s younger peer Bitcoin Cash (BCH), and sparking a shift in sentiment.
The Free Money Disappointment
One of the perceived benefits of a hard fork amongst cryptocurrency market participants is the opportunity to receive a portion of the new currency resulting from the split. In the case of the SegWit2x plan, the hard fork would have resulted in the emergence of two currencies, bitcoin and the newer bitcoin2x. In the leadup to the proposed fork, individuals who missed out on August’s bitcoin cash fork piled into bitcoin hoping to receive the same amount of its new relative.
Bitcoin2x found itself listed in many exchanges before the actual rollout, helping market participants ascertain market depth during the initial price discovery process. However, much to the dismay of hopeful bitcoin holders, SegWit2x suffered from a lack of consensus, resulting in its ultimate termination. While the cancellation of the fork highlighted the true power of the bitcoin community and network to engage in a democratic decision-making process, the community also felt aftershocks. Some of the money that had moved into bitcoin changed teams, resulting in a net gain for both currencies.
The lesser realized aspect of this event was a greater demand within the community for bitcoin cash and its more accessible nature. Ultimately, bitcoin cash operates more like a currency, thanks to its bigger blocks which enable more transactions to be recorded. Bitcoin stands out as more of an asset for investment and trading purposes. The resulting SegWit2x abandonment meant cryptocurrency adopters, especially miners, understood that bitcoin cash would be unrivaled by bitcoin in its processing capabilities over the near-term. Bitcoin meanwhile is still in development of the off-chain solutions that will keep it competitive in the long-term.
More Miner Interest
Miners play a vastly important role in the cryptocurrency ecosystem, not only for mining coins, but contributing to the processing power needed to record transactions on the chain itself. One of the best benefits of the August hard fork was that the separation from the original bitcoin blockchain resulted in two chains, both with the same structure and algorithm underpinning the system itself: SHA256. For bitcoin miners, the introduction of the bitcoin cash chain was overwhelmingly positive due to the same hardware requirements for mining. This meant that miners could easily switch between the two cryptocurrencies depending on which was easier or more profitable to mine at any given time.
Furthermore, thanks to the introduction of the bitcoin cash EDA solution, which adjusted mining difficulty based on the total amount of time it took to process a block of transactions, bitcoin cash’s advantages quickly overtook that of rival bitcoin. Each time an event like SegWit2x happens, demonstrating to the community that its bitcoin cash at the cutting edge, mining power and market cap have switched (and stayed) with bitcoin cash.
While the notion of an upcoming fork is positive for bitcoin overall, it always results in some post-fork money changing teams. Bitcoin cash now represents to the community that a different idea is more valuable for bitcoin: a useful currency transfer solution. This opinion has increased its acceptance and popularity amongst miners and investors in the last few months, even as bitcoin reaches new heights.
However, it was shown that without the consensus needed from bitcoin’s existing community to modestly increase the block size (to 2MB from its current 1MB for example), hard fork proponents likely migrated to bitcoin cash, which helped the cryptocurrency to briefly overtake the market capitalization of Ethereum. In addition, it led to a significant increase in bitcoin cash’s processing power, which concurrently contributed to its rising value. This cycle upwards has momentum.
A Race for the Exit
As famed economist Milton Friedman once pointed out, “there’s no such thing as a free lunch”, and bitcoin2x hopefuls recently learned this lesson the hard way. Though the SegWit2x cancellation was another prominent example of the strengths of peer-to-peer networks in terms of their more democratic governance and participation structures, it in turn empowered bitcoin cash to reap the rewards of its failure to launch.
The community learned that even if you manage to split the chain, you probably can’t expect the results that bitcoin cash had already achieved up to that point. It takes serious, long-term community consensus, and when people realized it was already there (and at a relative bargain) they ran to buy bitcoin cash.
Without a solution to the scaling problem facing bitcoin, apart from second layer solutions like the Lightning Network, the eager traders that piled into bitcoin hoping to receive a portion of bitcoin2x were dismayed to learn of it failure. Ultimately the biggest beneficiary proved to be bitcoin’s increasingly prominent rival, bitcoin cash. Between the jump in interest from miners and investors who understand the more applicable model, bitcoin cash’s attributes stand out as a helpful solution for greater embrace of cryptocurrencies.
Make no mistake, it has been embraced. In most places where bitcoin is exchanged, bitcoin cash is right alongside it, and it’s incorporated into countless wallets and applications as well. Although it’s easy to measure its success on market capitalization alone, the true rewards of the SegWit2x debacle were felt by the affirmation of the ‘new’ bitcoin as the real solution to the scaling problems plaguing its antecedent.