SegWit2x Fork Debate: Why Opinions Differ So Much on Bitcoin Hard Forks

A group of bitcoin companies plan to deploy a hard fork in November this year to double the bitcoin block limit to 8 megabytes. The method is called "SegWit2x", and this incompatible protocol change follows the New York Agreement (NYA) and is embedded in the BTC1 software client.

SegWit2x has caused a lot of controversy. If the polls and futures markets are representative, then it means that most of the Bitcoin development community, some other companies, some mining pools and most users and markets are not on this hard fork. Some of them are even running a protest movement under the banner of "NO2X (resistance to fork)".

Note: Not all SegWit2x supporters agree with all arguments in favor of the hard fork, and not all opponents agree with all arguments against it. This is just a general (and perhaps incomplete) overview of the various arguments.

Support for hard forks (2X)

Enables lower transaction fees and/or faster confirmations

Many people who support relaxing the block size limit believe that one of Bitcoin's main value propositions is its potential as a payment method. They prefer cheaper and faster on-chain transactions than they currently have, and believe that this is what the vast majority of users want. SegWit2x supporters are often more willing to give up other iconic features of Bitcoin, such as strict censorship resistance.

With larger blocks, the Bitcoin network can process more transactions. This should make average fees go down and transactions confirm faster. Or at least make it more expensive to attack, because if they want to jam the network with fake transactions, they may need to increase fees and confirmation times. Therefore, SegWit2x supporters believe that the hard fork that doubles Bitcoin's block weight limit will attract more Bitcoin users faster.

On the other hand, faster adoption (SegWit2x) could benefit Bitcoin in several ways. Bitcoin's exchange rate could rise, which would also increase miner revenues, potentially bringing in more hashing power to secure the Bitcoin network. At the same time, more users might run full nodes, contributing to geographical network decentralization. Furthermore, Bitcoin's growing popularity could even make it harder for governments to ban it.

It’s a compromise

The New York Consensus was born out of the Bitcoin scaling controversy, in response to the looming threat of a contentious hard fork initiated by the “alternative protocol” implementation group Bitcoin Unlimited. The effort was largely championed by supporters of block size increases and opponents of the Segregated Witness (SegWit) protocol upgrade, such as Bitmain and Bitcoin.com.

These companies are using the hashing power of their mining pools to delay the activation of SegWit while planning to use a hard fork to increase the block size, which could potentially “split” the Bitcoin network into two incompatible blockchains and currencies.

SegWit2x was proposed as a compromise between the two camps in the scaling dispute. "One side" can implement Segregated Witness, while "the other side" will achieve scaling through a hard fork. Most signatories believe that this will be a solution to keep the Bitcoin network united, at least in times of dispute.

This is to keep the promise

While a doubling of Bitcoin’s block size will (likely) reduce average fees and/or confirmation times, the recent activation of SegWit has indeed reduced both of these. Therefore, for the remaining signatories of the New York Agreement, it is the increase in block weight that is more important than the protocol itself. Abandoning the protocol during the “transition period” after SegWit activation and before the hard fork would be a violation of the agreement they signed.

Not only that, it can now be seen that Segregated Witness was not actually activated because of the "New York Consensus", but because of the BIP148 User Activated Soft Fork (UASF). Due to the controversial nature of BIP148, many of the "New York Consensus" signatories do not think that UASF is a real success.

Want to “fire” Bitcoin Core

Currently, most people who run full nodes choose to use the Bitcoin Core software client, which is the main implementation in the Bitcoin network. Some even consider it the "reference client" defined by the Bitcoin protocol.

The motivation for SegWit2x seems to be vaguely intended to remove the perceived power or influence of Bitcoin Core developers on Bitcoin protocol development by having most companies and miners switch to the BTC1 software client. (It should be noted that in this context, “fired” actually means “no longer using the software maintained by these developers.” Bitcoin Core developers are essentially volunteers and cannot be literally fired, while most of the code in the BTC1 client was written by Bitcoin Core developers.)

Of course, Bitcoin Core developers could release a new Bitcoin Core client that uses the SegWit2x hard fork, making it compatible with BTC1 and therefore compatible with these companies and miners. In fact, this is probably what many of the signatories of the New York Agreement want. In this case, BTC1 would effectively become the new reference client for Bitcoin, at least from the perspective of these signatories.

Other signatories may prefer that the Bitcoin Core development team withdraw entirely. In some cases, support for the hard fork may be primarily motivated by resentment towards the Bitcoin Core project and a desire to take any action that would discredit them.

Miners are the decisive factor

Over 90% of miners (by hash power) are currently signaling support for SegWit2x. While this signaling itself is technically meaningless, SegWit2x supporters believe that miners will follow this clear intention.

Some SegWit2x supporters argue that miners decide the future of the Bitcoin protocol — or that’s what they should decide. If a hard fork results in two incompatible blockchains, they argue that whichever blockchain has more hash power will prove it’s the “real” Bitcoin. Or at least the blockchain they keep with the most hash power will be the more secure and efficient “Bitcoin” and the one people want to use.

Oppose Hard Fork (NO2X)

This is a compromise in security

Opponents of SegWit2x generally believe that increasing Bitcoin’s block size would bring many risks.

For example, larger blocks increase the resource requirements for running a full node, such as more bandwidth usage, longer sync times for new nodes, etc. This increases the cost for individual users to participate in the network in a trustless, secure way. Conversely, this increased cost may have a centralizing effect on the network, resulting in fewer users running full nodes.

Additionally, larger blocks will slow down block propagation on the P2P network, and larger miners and mining pools are likely to benefit: another centralization effect.

Limiting network throughput to a certain extent may actually be good, as it would increase fee pressure, which in turn would incentivize miners to maintain network security as the rewards for mining blocks decrease over time.

All of these types of risks could ultimately lead to more centralized, and therefore less censorship-resistant and permissionless Bitcoin. This is sometimes referred to as the “PayPal 2.0 risk,” where Bitcoin would be degraded by losing what SegWit2x opponents see as its defining features and primary value proposition.

With the activation of Segregated Witness, the Bitcoin block size increased from 1M to a maximum of 4M. Some people believe that this is already a risky compromise. SegWit2x will double this risk to 8M, which opponents of SegWit2x generally believe is too large for now.

Oppose "black box operation"

While the details are murky (which is part of the problem), it’s thought that SegWit2x was crafted internally by a small group of executives from several prominent bitcoin companies during an invitation-only meeting hosted by the Digital Currency Group at a New York hotel.

After what they believed was a compromise and agreement between the two sides in the scaling dispute, they signed the agreement with other companies, claiming that the agreement represents the total user base of all these signatories, that is, all the hash power connected to the participating mining pools.

Furthermore, while BTC1 technically had an open development mailing list and an open Slack discussion channel (although both were initially closed), there was not much discussion in these settings. This meant that there was not much discussion about development at all, or that such discussion about development was also taking place in an unknown closed environment.

All of this is in stark contrast to the open-source ethos that Bitcoin was born out of, and which still permeates its development today. For example, Bitcoin Core developers meet publicly on IRC to discuss potential Bitcoin protocol changes (BIPs) on a public mailing list, and both communication channels are relatively active.

Furthermore, opponents of SegWit2x generally argue that a key feature of Bitcoin is that users are in control of their own money. While third-party companies can provide services, opponents of SegWit2x argue that these companies should not define Bitcoin on behalf of their customers, and certainly not on behalf of all Bitcoin users.

All of this is more than just a matter of principle: opponents argue that SegWit2x could actually set a bad precedent. If a small group of companies proves to be able to effectively control the Bitcoin protocol, those companies could become a significant cause of failure. For example, governments could put pressure on them to introduce blacklists or other features that undermine Bitcoin’s core.

Opposition to the “expulsion” of Bitcoin Core

While Bitcoin Core is indeed the main client of the Bitcoin network, this is only because users voluntarily choose to run the software, and at least many opponents of SegWit2x are happy to do so. They have no intention of "firing" the Bitcoin Core development team at all.

It is not possible to say that if any group of developers can or will replace the current Bitcoin Core developers, they should be “fired.” After all, there are not many people in the world who have a deep understanding of the Bitcoin codebase or its inner workings.

For example, BTC1 really only has one developer doing the bulk of the work: Bloq CEO Jeff Garzik. Garzik does have experience working on the Bitcoin Core codebase, but his core experience is not in the key code for reaching consensus. This also means that testing and evaluating BTC1 is fairly minimal.

While some SegWit2x supporters hope and believe that Bitcoin Core developers will merge the SegWit2x code, or otherwise focus on the SegWit2x version of Bitcoin after the hard fork, this seems unlikely: the project even issued a rare statement rejecting SegWit2x. On the contrary, if the SegWit2x hard fork is successful and the current Bitcoin protocol stops functioning, several Bitcoin Core developers have stated that they would consider this result to represent the failure of Bitcoin itself and would choose to move to a different project entirely.

Finally, it should be noted that while Bitcoin Core is dominant, it is not the only software client that embeds the current Bitcoin protocol. Bitcoin Knots, Libbitcoin, Bcoin, and a host of other alternative clients also implement it. It can be said that SegWit2x "expels" not only Bitcoin Core, but a large part of the entire development community.

Opposition to contentious hard forks

The SegWit2x hard fork is controversial because not everyone agrees that it is the best approach or even beneficial. Many SegWit2x critics oppose any contentious hard fork for two main reasons.

The first reason is philosophical. Opponents of SegWit2x believe that Bitcoin’s resistance to change, like gold, is one of its key value propositions. More specifically, they believe that the rules of the system should not be changed at the will of users: this would undermine trust in this type of currency.

The second reason is similar, but more technical: not only will the rules not be changed at the will of the users, but they cannot be changed at the will of the users. Because as long as users run full nodes and do not switch to SegWit2x, the original Bitcoin protocol will continue to exist. Therefore, a hard fork like SegWit2x will not change existing Bitcoin at all; instead, it will create a new blockchain and new currency - splitting into two ecosystems.

This also explains why SegWit2x is not considered a "compromise" by opponents. For them, the SegWit2x hard fork is not a compromise. On the contrary, such a controversial hard fork is something they do not want.

This hard fork was too hasty

Even if the hard fork is not contentious, opponents of SegWit2x will argue that it is too hasty. Because the hard fork needs to be successful for everyone to upgrade, that is, there is no split - then many people believe that a typical hard fork should take at least a year, and even two years or more.

SegWit2x was scheduled three months after Segregated Witness was activated and about six months after the agreement was reached, which opponents believe is too short even for a non-consensual hard fork, let alone a controversial one.

Lack of replay protection

If SegWit2x does lead to a split in two (although the current lack of consensus suggests otherwise), there will be two blockchains and coins with a shared history: one that follows the current Bitcoin protocol, and one that follows the SegWit2x protocol. Anyone holding Bitcoin at the time of the fork will own both coins.

But this also means that most transactions are equally valid on both blockchains. Whenever anyone wants to send coins on one chain, this exact same transaction can be "replayed" on the other chain, meaning that one transaction actually spends two coins, even if this is unintentional. This is called a "replay attack" and can easily lead to the loss of funds.

If BTC1 implements "replay protection", these replay attacks can be prevented. However, at present, the BTC1 team does not intend to implement this protection; at least not in the form of "replay protection" to solve this problem.

Such a fork without replay protection is considered disruptive and even reckless by many, including opponents of hard forks and even several signatories of the New York Consensus: some have already withdrawn for this specific reason.

Can cause brand confusion

Besides replay protection, another big issue with ecosystem fragmentation could be brand confusion between the two coins.

If users (and service providers) on both sides of the split believed their coins were "real" Bitcoins, it's not hard to imagine all sorts of complications that could result. For example, a user wanted to buy one coin from an exchange but got another. Or they sent one coin to a merchant but got another. And many more scenarios like that.

This confusion can easily lead to loss of funds and may even lead to lawsuits and similar issues. (Even with the new name Bitcoin Cash (BCC) and replay protection, the address format is still the same; in many cases, users still send Bitcoin to BCC addresses.)

Opponents of SegWit2x argue that the coin, which follows the new protocol, should choose a new name, but so far, the New York Consensus signatories have not indicated a willingness to do so.

Should not insist on a broken agreement

While the New York Consensus is intended to maintain consistency on the Bitcoin network, opponents of SegWit2x believe the protocol is inherently broken.

Segregated Witness did activate on the Bitcoin network, likely in part due to SegWit2x, but also instigated by the BIP148 User Activated Soft Fork (UASF). However, some of the people who supported a hard fork to increase block size (and opponents of Segregated Witness) also launched BCC in response. This resulted in a "split" between the Bitcoin and BCC blockchains and currencies, not unlike the split that Bitcoin Unlimited may have caused. Several New York Consensus signatories (including Bitmain and Bitcoin.com) supported the fork, which opponents of SegWit2x argued would defeat the purpose of the original SegWit2x.

In addition, several other signatories formally withdrew their support for the fork, citing the lack of replay protection mentioned above or other reasons.

As a result, opponents of SegWit2x argue that the protocol has been broken for all intents and purposes, and that the remaining signatories have no reason to stick around.

Miners should not be the deciding factor

Finally, opponents of SegWit2x argue that its proponents misunderstand Bitcoin’s consensus and incentive mechanisms.

Opponents of SegWit2x believe that miners should follow the protocol rules implemented by users and all their node clients, rather than making protocol rules. If the blocks mined by miners are incompatible with the Bitcoin protocol defined by users, these miners are not mining Bitcoin at all. Instead, the "blocks" they produce will only be rejected by the user network, and these miners will mine different coins, or just waste hash power.

And this isn’t just a matter of principle. If miners decide which protocol is valid solely through hash power, then this means they can change the protocol rules at will. This could even allow them to change the course of inflation to eliminate the 21 million bitcoin limit, steal funds, and so on.

In fact, the NO2X protest has something in common with BIP148's UASF: both want to protect the user's right to decide. Users decide to buy coins, receive payments and/or hold them. Therefore, it should be up to users to decide which protocol to use the hash power for: the original Bitcoin protocol or the SegWit2x protocol. This time, miners are arguing only about which scheme they want to mine, which are two different things.