What is Bitcoin Hardfork And Segwit? How to Deal With Bitcoin Hardfork?
The debate on scaling solution has been going on for years, never has it been that urgent as it is in current scenario. As speculators remains to push the price of bitcoin to new heights and new users joins Bitcoin community, the network is now reaching full capacity.
As Bitcoin scaling is knowing the door now, Hardfork (Bitcoin Unlimited – BU) and Segwit are the two important proposals of scaling. Many of the investors are wondering what will happen with their bitcoins in case of a Bitcoin hard fork. In this article we will discuss about basics about Hardfork and Segwit and How can you avoid risk of loosing out your Bitcoin holdings.
Hardfork or Bitcoin Unlimited (BU):
A stable blockchain divergence that occurs as a result of the invalidation of the upgraded node blocks by the non – upgraded nodes is termed as ‘Hardfork’. It is nothing but updating software from its older version. It cannot be reversed at any instant of time, once it has been made. When an user wants to make reversal, the only option is that he have to do another hardfork.
Roger Ver, who was a bitcoin investor, represents Bitcoin Unlimited. He made his investments in several companies like Kraken, Bitpay, Blockchain.info and so on. He had a total of around 300,000 bitcoins.
Merits of Bitcoin Unlimited:
- It is the best solution for the issues related to block size.
- It enhances the efficiency of transactions made via bitcoins.
Demerits of Bitcoin Unlimited:
- It is not yet tested.
- It constitutes a smaller team for development.
- The track record of the development team is not good.
- It is completely irreversible in nature.
What is Segwit:
Segwit also known as ‘Segregated witness’, which is referred as an update that facilitates the bitcoin bug fixes. It gives a chance for future scaling through the lightning network. It concentrates mainly in the reduction of transaction size.
The bitcoin core team represents segwit, which is responsible for the updation and maintenance of bitcoin protocol. The team constitutes around 100 contributors and 25 developers, who are working full time. It acquires funds partially from a concern called Blockstream.
Merits of Segwit:
- In the bitcoin protocol, it facilitates Malleability bug fixing.
- It provides an extra ordinary security to the bitcoin protocol, thereby enhancing the efficiency as well as the profit rate.
- It reduces the size of transactions, which is approximately equal to a block size of around 2 – 3 mb.
- It can be started via soft fork.
Demerits of Segwit:
- It is only a temporary solution and it cannot be used for long time.
- It requires the usage of bigger blocks.
Issues with both Bitcoin Unlimited and Segwit:
- People are ready to make huge payemts in order to achieve faster transactions, since the transactions are usually slow. They have to wait patiently for several hours or even days for the completion of transactions. Due to this demand, the transaction charges are comparatively high.
- The above mentioned issue (high transaction fees) reduces the usage of bitcoins.
Compared to Segwit, Bitcoin Unlimited has achieved a high and notable support in the bitcoin community.
What is Fork:
Fork is a technical concept used in several open source projects by the developers. It is nothing but updating an application or software. It is simply defined as a ‘software update’, which implies leaving an older version in the desktop computer or mobile phone by upgrading it. The two types of fork are:
- Hard fork
- Soft fork
What will happen while fork occurs:
Based on the type of bitcoin wallets, the following aspects will happen:
- The entire bitcoins will be transformed to BTU only.
- The entire bitcoins will be transformed to BTC only.
- Doubling of coins will occur, thereby the users will receive an equal amount of BTU and BTC.
The users will get the actual benefits depending on the type of wallet, they use for bitcoin storage. Eg: Coinbase is a supporter of BTC only. On the other hand, Trezor is a supporter of both BTU and BTC.
In addition to the wallet selection, the users must also ensure that whether they have counter measures for protecting their coins from Replay attack.
Replay attack is nothing but stealing the coins by hacking the information. Also, the users must verify their coins, before spending them.
How to avoid loss during hardfork:
- In order to avoid the confusion, it is important to keep the coins inside a self hosted wallet like Exodus or Electrum wallet, irrespective of BTU or BTC.
- The users may ensure their coin security by using Ledger or Trezor Hard wallet.
- The users can transform their bitcoins into altcoins such as Monero, Ethereum (ETH) and Litecoin.
- The users can avoid risks by selling all the bitcoins, that they have in their wallet.
Hope this article about Bitcoin Hardfork and Segwit solution will be helpful for the readers to make a decision to deal with the event of Hardfork if it happens. As we discussed about the solutions above we will post articles on how to use wallets like Mycelium, Blockchain, Exodus and Trezor. Stay tuned with us for further updates.