Hard fork for bitcoin network
The probability of hard fork, i.e. bitcoin network blockchain separation into two independent chains, somewhat increased. That’s because, most bitcoin miners missed the first time-frame for the so-called user-activated soft fork (UASF / BIP 148).
The next two weeks are likely to be the culmination of lengthy discussions about the bitcoin road map. One of the proposals – UASF (BIP 148) may give rise to the activation of the Segregated Witness (SegWit) protocol at 00:00 UTC on August 1. All user nodes that are currently signaling UASF support will start rejecting blocks that do not contain the same support for the specified time.
BIP 148 and SegWit are backward compatible protocol upgrades. This means that nodes that do not upgrade will still accept blocks that either signal in support of SegWit, or are already using this protocol. Thus, if before August 1 most of the miners’ capacities accept SegWit in at least one of these ways, all the current nodes in the bitcoin network will continue to follow the same chain.
At the same time, there is possibility that activation of SegWit through BIP 148 will be carried out only by a small part of the miners. In this case, the bitcoin network block, as well as the crypto currency itself, will undergo division into two separate chains. As a result, at least two bitcoins will appear (another series of alternative circuits, such as Bitcoin ABC, another child of the Chinese company Bitmain, may appear).
In the case of a bitcoin network separation, the split between the nodes will continue. The process will go on until at least most of the processing power of the bitcoin network connects to the BIP 148 circuit. Or until all users and miners permanently abandon BIP 148 chain.
How can the bitcoin network avoid splitting?
The miners have three main options to avoid such scenario.
The first option is fixing the SegWit protocol until August 1. It can be done through the activation mechanism proposed by the Bitcoin Core development team. A signal is required from the owners of 95% of the bitcoin network hash rate for a 2-week complexity period. Such complexity period consists of 2016 consecutive blocks. For fixing, it is necessary to signal from at least 1916 blocks. In other words, if more than 100 blocks (at least 101) do not signal SegWit support during one complexity period before August 1. Then, the deadline in support of UASF (BIP 148) is considered to be missed.
The last complexity period will be over before August 1. It started on Friday, July 14. However, for the first two days only approximately 44% of all the found blocks signal the readiness for SegWit. At the same time, a significant majority of hash rate miners make it clear that instead they intend to activate SegWit via BIP 91 (This is a proposal designed to ensure compatibility of SegWit2x – another solution involving activation of SegWit) and 83% of the bitcoin-nodes already supporting SegWit version.
The next deadline for BIP 148 activation will be July 29. This is the last day when BIP 91 can be activated to be compatible with BIP 148. This will require 80% of miners’ support for the duration of 2 days and 8 hours. Taking allotted time into consideration, the last deadline, when the miners should start signaling its support, is July 26.
If deadline missed, the miners will have another opportunity to avoid splitting the bitcoin network. This time, they will need to support SegWit directly through BIP 148 by 00:00 UTC on August 1. As an alternative scenario, the majority of the hash rate may switch to the BIP 148 chain even after August 1. This is likely to result in significant stress of the bitcoin network. Also, the users unaware of possible risks will experience some losses.
“Our opinion”: It is best to refrain from any transactions on the bitcoin network starting from the last days of July and early August. Also, you should not store your bitcoins on stock exchanges that do not allow you to create local copies of private keys.