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“Bitcoin’s Bubble Bursts”
“The Start of the End for Bitcoin”
“Cryptocurrency Bloodbath as Bitcoin and Others Tank”
These, and every variation thereof, have been the headlines splashed across media channels over the last few weeks, as bitcoin’s price turned downwards for about a 10 day period. Any pullback gives detractors the opportunity to voice their views, and they will do so with gusto! Fortunately, we have a more optimistic outlook due to the fact we are able to determine objective reasons for any dramatic swings or corrections, and in most instances anticipate them in advance.
The recent downturn is no different, and can be attributed to a virtual tipping point in the ongoing Bitcoin Scaling debate within the bitcoin community. Essentially with two Bitcoin ‘camps’ each advocating a different solution to enable faster processing speeds, a stalemate has been present for quite some time. In recent months there has been an exceptional amount of speculation regarding the outcome, and the best solution for Bitcoin’s future.
In May 2017, we thought there was light at the end of the scaling debate tunnel when the Digital Currency Group, led by Barry Silbert, put together a proposal which aimed at providing a fair compromise for both parties, called SegWit2x. This became known as the New York Agreement and stated that an implementation of a solution called Segregated Witness (SegWit) would go ahead, followed by an increase in the Bitcoin block size to 2MB. Around 58 companies and 83% of the mining hashing power agreed to this by 25 May. But with a looming activation date of 1 August and few signalling for the solution, it appeared the predicament prevailed and as a result, confidence in Bitcoin waned, bringing a sharp decline in price.
Enter BIP 91.
In the last week a proposal put forward by Bitmain engineer, James Hilliard, called Bitcoin Improvement Proposal 91 (BIP 91) has gained a huge amount of traction and has been locked in by the miners.
BIP 91 offers an alternative route to implementing SegWit followed by the 2MB hard fork in November. BIP 91 also offers a quicker way of implementing the original SegWit proposal (BIP 141) without the need to redeploy, should it not gain enough support by November this year, which would be technically infeasible.
In order for a miner to signal their support for a proposal, they must set a ‘bit’ in the version field of which blocks they want to mine. This indicates their readiness to enforce new rules. The original proposal of SegWit (BIP 141) required miners to signal using ‘bit 1’ and the SegWit2x proposal called for supporters to signal using ‘bit 4’. SegWit (BIP 141) was coded to only respond to blocks signalling ‘bit 1’, and therefore a workaround was required to ensure a smooth deployment of the SegWit2x solution.
BIP 91 applies a different method to address the conflicting bit numbers. It essentially adopts the same process as BIP 141 with a few tweaks, as follows:
At the time of writing, the 80% threshold has been reached and has been locked in. The 336 blocks have now been mined and BIP 91 locked in. SegWit (BIP 141) looks likely to be implemented, upon activation of BIP 91, and miners will begin signalling with ‘bit 1’. Any blocks that do not contain this signal will be blocked from the network.
Furthermore, as long as there are 51% of miners enforcing the required ‘bit 1’ signalling, there will not be a chain split, which has been a grave concern amongst investors and users.
This is further supported by the fact that a majority of the hashing power would have already been signalling for BIP 91 for this to happen, and thus maintaining this rate of consensus would not be a difficult task.
Tech-talk aside, BIP 91 provides a working solution to the ongoing scaling crisis, with the implementation being underway. From an investment perspective, this is encouraging and we have seen a restoration of confidence as the market has experienced positive growth since the announcement.
As mentioned above, as a result of the scaling quandary and speculation regarding the high probability of a coin split occurring, the Bitcoin market showed exceptional volatility of late. Many were selling out of their positions and holding fiat, with the view to acquire more coins at a cheaper price, and the market began to retract.
What was most interesting was that as Bitcoin began to take a tumble, the rest of the cryptocurrency markets followed suit, including Ethereum which fell almost 20%. This ‘domino effect’ reinforces Bitcoin’s dominance in the marketplace and how much the altcoin markets rely on, and reflect Bitcoin’s movements.
BIP 91 has given a fresh boost of confidence in a successful scaling, and the Bitcoin market has strengthened as a result. All we do now is wait for the implementation to be completed and look to the next phase of SegWit2x in November. From this we can expect a stronger Bitcoin to emerge, edging closer to reaching its full potential, and confirming our belief of its position of being one of the most valuable innovations and investments of our time.