At the time of writing Bitcoin has managed to break the psychological milestone of $4500 – the highest price since September 8. We’ve already seen first hard fork of the Bitcoin chain on August 1st, resulting in another cryptocurrency called Bitcoin Cash (BCH) with a block size of 8 MB.
Come November 1st, we could see another Bitcoin hard fork, possibly resulting in another cryptocurrency with the block size of 2 MB.
At this time, the maximum capacity of each block is 1MB which means that the number of transactions that can fit in a single block is limited.
It is hard to remember a time when Bitcoin community wasn’t arguing about the increase in block size. Different perspectives have divided the community into two different factions; those who are for and those who are against the block size limit increase.
Bitcoin’s recent growth led to an increase in a number of transactions which have caused the network to reach its capacity. As a result, users are having to pay a significant amount of fees in order to quickly get transaction confirmations from the miners.
Having near-zero fees is one of the reasons why Bitcoin was created in the first place. One faction of Bitcoin community argues that the only way to solve this scaling issue is by increasing the block size. Other advocates want to keep the block size to 1MB. Bitcoin core, a team of developers that works on the development side of Bitcoin, favors the latter case.
The Bitcoin Core team presented a scaling proposal that needed a 95% approval rate from the miner community, called SegWit (Segregated Witnesses). SegWit also brings other advantages like the transaction malleability fix, which allows for second layer networks like the Lightning Network (LN), and other in-development advances.
Unfortunately, SegWit did not get the necessary support from miners which led the “User-Activated Soft Fork” or UASF, a fork that aimed to compel miners into signaling approval for SegWit, by rejecting blocks that did not contain this signal.
After the Hong Kong agreement had failed, New York Agreement was born in May 2017. This New York Agreement is also known as SegWit2x and embodies a sort of arrangement between the two initial options, the 2MB hard fork and SegWit. It was conceived between leading companies in the crypto industry, including mining pools which accounted for 83% of the global hash rate at the time.
Most signatories believed, at least at the time of the agreement, that this would be a solution that should keep the Bitcoin network together.
While doubling Bitcoin’s block size would (probably) decrease average fees and/or confirmation times, the recent activation of SegWit did already decrease both quite a bit. But dropping out of the agreement “halfway” – after SegWit activation but before the hard fork – would be a breach of the agreement they signed on to.
A large percentage of users believe that an increase in block size would result in the centralization of Bitcoin mining since the hardware requirements would escalate with a block size limit increase.
SegWit2x is highly controversial. So much so that some of the people are even engaged in a sort of protest movement, under the banner “NO2X.”
More than anything Segwit2x seems to be at least partially motivated to remove the perceived power or influence that Bitcoin Core contributors have over Bitcoin’s protocol development, by having a majority of companies and miners switch to the BTC1 software client instead.
It is important to note that BTC1 client is forked from Bitcoin Core and thus most of the code is written by Bitcoin Core developers anyway. As of now over 90% of miners by hash power are currently signaling support for SegWit2x. This signaling is technically meaningless, SegWit2x proponents assume that miners will follow through on this stated intent.
Jeff Garzik, developer of Segwit2x, and the BTC1 team have until November 1st complete the project if they want to go ahead with the hard fork.
A reddit user put this whole situation in context really well:
Users: We want SegWit
Miners: No, we want 2mb fork
Users: We want SegWit, or we stop accepting your blocks
Miners: You’ll get SegWit and then we hard fork 3 months later, k?
Users: No, we just want SegWit
Miners: OK deal, SegWit now, fork later
Users: Not what we agreed to, but thanks for activating SegWit
Miners: OK now is time to fork
Users: No, we don’t want the fork
Miners: But we agreed to do this
Users: No, we didn’t
Miners: Well we’re doing it anyway