What does the cancellation of the 2x fork mean for bitcoin?

The small group of individuals who proposed the segwit2x update to the bitcoin protocol have suspended their attempt to increase the block size by way of a hard fork. What does this say about a key feature of bitcoin and other cryptocurrencies: decentralisation?

Source: Bloomberg

In the first half of 2017, a proposal known as the New York Agreement was put forward which was meant to help speed up transactions and reduce costs on the bitcoin network. One of the key features of bitcoin is that it is supposed to be decentralised with the whole bitcoin community deciding on the future direction of the network. However, only a few individuals were in the New York meeting.

The proposal to change the bitcoin protocol had two phases: the introduction of an off-chain scaling solution called segregated witness or ‘segwit’ and an increase in block size from the previous one megabyte cap. The ‘segwit’ phase went through relatively smoothly and the 2x part was supposed to be implemented within six months but was abruptly cancelled on 8 November 2017.

The cancellation was confirmed in an email signed off by just six prominent figures of bitcoin. These six hold a significant amount of so-called hash power, which is used to sustain and validate the bitcoin ledger.

‘Although we strongly believe in the need for a larger block size, there is something we believe is even more important: keeping the community together. Unfortunately, it is clear that we have not built sufficient consensus for a clean block size upgrade at this time. Continuing on the current path could divide the community and be a setback to bitcoin’s growth. This was never the goal of segwit2x,’ said Mike Belshe, the lead signatory of the statement and chief executive of a bitcoin wallet and security company.

Proponents could argue this shows that decentralisation is working. The wishes of the many won over the proposal of a few.

Critics could argue however that the fact that such a small group locked themselves away, came up with a proposal, pushed through part one and then decided to pull phase two, shows that decentralisation isn’t working and a few key figures wield too much power over the network.

In a perfect world, a decentralised consensus works; one man, one vote. In reality, there’s obviously evidence that it doesn’t work. Hash power, and therefore power over the community, consolidates in places where electricity, land, and computer chips are cheap. Furthermore, those first to the table have the first mover advantage. It’s a sign of a potential failure for the vision of bitcoin creator Satoshi Nakamoto.

However, only time will tell how this plays out. Cryptocurrency advocates still retain hope. The idea of blockchain technology is less than a decade old and there is still a chance that the free market competitive nature of the wider system will find a solution. There are now hundreds of competing blockchain and decentralised ledger technologies out there.

While the bitcoin community may end up ripping itself apart, all the other core cryptocurrency development teams and communities may learn from these mistakes. 

Cryptocurrency trading

You don’t need to own cryptocurrencies to trade
on them.

Learn how to go long or short on bitcoin, ether,
ripple and litecoin.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.  Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. 

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

All trading involves risk and losses can exceed deposits. Trading CFDs may not be suitable for everyone so please ensure that you fully understand the risks involved. All trading involves risk and losses can exceed deposits.