Wednesday, June 21, 2017

Do Not Worry About Bitcoin

Some in the Bitcoin community are dreading SegWit, short for Segregated Witness, and the imminent BIP148 upgrade to Bitcoin, scheduled to happen before August 1, 2017. 

BIP148 is not to be feared. Part of the network can choose to implement it and the other can retain the original software. As currently configured, BIP48 is a soft fork, meaning that the change can be partially implemented and adopted universally after a majority of network miners support it. 

SegWit2X, the current iteration of Segregated Witness, is scheduled for implementation on 21 July. It proposes to create a hard fork six months later, meaning that backward compatibility would not be feasible after that time, as unlike a soft fork a hard fork is not reconcilable. 

The fear is that this hard fork could cause a split in Bitcoin like the one that happened with Ethereum. There are two types of Ethereum, one of which is called Ethereum Classic, for obvious reasons.

SegWit is a development by the longstanding team supporting Bitcoin Core. What SegWit does, among many things, is it increases Bitcoin's block size limit, addressing concerns about scalability.

The blockchain consists of consecutive blocks of transactions, it is a running ledger of all transactions that have taken place using Bitcoin since its inception. The blocks currently are 1MG in size, this limit is hard coded into the software.

Bitcoin watchers perceive that the blockchain is struggling to keep up with the number of transactions that users are executing every minute. Transactions are getting processed, but delays are creeping into the system, and the problem is becoming worse, undermining one of the primary advantages of blockchain technology: rapid response.

SegWit2X increases the block size to 2MB, though actual block sizes could exceed 4MB, as SegWit also includes an increase to the block size limit. Most analysts expect the blockchain will increase to between 2 and 2.1MB immediately after SegWit is implemented.

I do not worry about these issues. If I have to wait a few days before Coinbase credits my account, I do not stress about it. They honor the price of Bitcoin at the time of purchase, and nobody gets cheated.

I am confident that these issues will work themselves out. Bitcoin is a technology with a limitless potential, and everybody using it wants it to succeed. So it will.

All that we users need to worry about is the price of Bitcoin. At the time that I wrote the early draft of this article, Bitcoin was plummeting, it dropped all the way down to $2214, and I consequently bought more.

I doubled down.

Of course, I am a very small investor. My total holdings at the time of this writing amounted to only $288. If I lost it all, it would suck, but I can absorb a $288 loss.

My bet was repaid. Bitcoin rebounded to $2752 by the time of this update. It appears to be rising strongly, and it is possible that this rally will continue. 

I am betting that the price of Bitcoin will rise. There are just too many favorable structural factors, particularly in Asia, to be ignored.

The original rant that this article is based on was posted on my Facebook page Magic Kingdom Dispatch on · June 15 at 9:24pm · 


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