Why Bitcoin’s value could get even more volatile
Bitcoin’s price could be in for a big drop, and that’s because the cryptocurrency is facing a potentially contentious upgrade to its core software in August. If you haven’t heard about the impending deadline for a “user-activated soft fork”, here’s the story:
For close to six years, the Bitcoin community has struggled to arrive at a consensus on how to scale the 1MB block size to meet growing popularity and adoption. A proposed user-activated soft fork (UASF) is an attempt to nudge the Bitcoin network to embrace and activate segregated witness (SegWit) — which some believe to be one of the most promising scaling solutions — by August 1.
In 2012, the network confirmed a daily average of 8,000 transactions. Today, that figure is around 350,000. Transaction overflow has resulted in high fees as users compete every 10 minutes for limited space in the Bitcoin block. The time it takes the network to confirm payments has also grown longer, at times going into hours.
Choosing and implementing a scaling solution for a decentralized platform is difficult. Having no central decision-making body is a good thing, for the most part. It makes Bitcoin less susceptible to censorship or takeover.
Slow adoption
A team of developers selected at the Hong Kong meeting released the SegWit code in October 2016. To activate, the code requires at least 95 percent of nodes to signal their support. Miners and nodes owners, however, have not been enthusiastic about SegWit. So far only 33 percent of about 7,500 nodes in the network are signalling support for it.
On February 25, an anonymous core developer who goes by the pseudonym Shaolinfry published the UASF as BIP148 on the Bitcoin-developer mailing list. He or she also released the corresponding code. The mission of the UASF was to nudge more miners and nodes to embrace SegWit and hasten its activation.
Many who agree with Shaolinfry take the view that miners in particular lack the incentive to adopt SegWit. A full Bitcoin block guarantees them increased revenue in the form of the high fees users pay to speed transactions. It is therefore users who have the interest in pushing for a more efficient system.