How to Survive the Upcoming Bitcoin Soft Fork - BIP 148 UASF Segwit
On August 1st
On August 1st there is a high chance that the Bitcoin Blockchain will experience a chain-split. The chain-split will be the result of a User Activated Soft Fork (UASF) which is part of the Bitcoin Improvement Plan 148 (BIP 148). Miners who accept the Soft Fork by signalling support for Segregated Witness (SegWit) will be on an alternate chain - let's call this Chain 148 - which rejects any blocks that are not signalling support for SegWit. The miners who choose to reject SegWit will remain on the original Bitcoin Blockchain; the Legacy Chain. If the majority of the miners (by hash power) do not accept the Soft Fork but at least some do, the two Blockchains will remain separated and two different Bitcoins will exist: BTC 148 and Legacy BTC. However, if the majority of miners (by hash power) signal support for Segwit, then the upgrade will happen smoothly and a chain-split will not occur.
What is SegWit?
SegWit is Bitcoin Core's plan to fix the slow transaction times plaguing the Bitcoin network. On the Bitcoin Blockchain, a block contains a list of verified transactions and their associated signatures. A block can only hold a finite number of transactions and signatures. The majority of the space within a block is surprisingly not taken up by the transactions but by the associated signatures. SegWit plans to remove these signatures from inside the block and tag them to the outside, thereby freeing up space within the block for more transactions to be stored. This results in the block being able to store 2 to 3 times more transactions post-SegWit. The result is faster transaction times, improving the efficiency, speed and practicality of the Bitcoin Blockchain.
Before August 1st
You need to be aware that a chain-split will create a high-risk situation which could result in the price of Bitcoin dropping to zero. Therefore, you should ensure that you are not holding more Bitcoin than you can afford to lose. If you do decide to hold Bitcoin, then you must ensure that you have control over your private keys. This means that you should not store your Bitcoins on exchanges or custodial wallets such as Xapo, Coinbase and Circle which control your private keys. If these services arent prepared for the chain-split you could lose all of your Bitcoins. So what you need to do is create your own wallet that stores your private keys and send your Bitcoins to this wallet. The wallet provider that you choose is up to you, some good wallets are any of the desktop/hardware wallets listed on https://bitcoin.org/en/choose-your-wallet. I personally store my Bitcoins on a Ledger Nano S hardware wallet.
In the Case of a Chain-Split - The Good News
The good news is that each Bitcoin will effectively be copied onto both Blockchains after the chain-split. Therefore, if you hold Bitcoins right now, you would hold both Legacy BTC and BTC 148 after the chain-split.
In the Case of a Chain-Split - The Bad News
After a chain-split, there is a high possibility of replay attacks. A replay attack occurs when a transaction on one side of the Blockchain - say the Legacy Chain - is also picked up and is valid on the other side - the 148 Chain. If this occurs, transactions involving the transfer of a certain amount of 148 BTC will also result in the transfer in an equal amount of Legacy BTC to the recipient. Therefore, you will have effectively paid the recipient twice. The best way to avoid this situation is to simply not send any transactions until the post Fork situation is stable and has been resolved.
Resolving the Chain-Split
The chain-split can be resolved in several ways. If at any point before or after August 1st, the majority of hash power signals support for Segwit, both Legacy nodes and 148 nodes would switch to the 148 BTC chain. This results in the Legacy Chain being discarded, resolving the situation. The chain split was only temporary and you can now continue to use BTC as usual. But until this happens, there is always a risk of the Legacy Chain being discarded as soon as the majority of the hash power is allocated to the BTC 148 chain. Therefore, it is inadvisable to buy any Legacy BTC coins after the chain-split as these funds could literally be erased at any moment.
If the Chain-Split Persists
If for whatever reason the chain-split persists, there will eventually be wallets developed for each individual coin. Coin splitting services will also be developed that allow you to separate your coins into two different wallets.
References
Thanks for reading and please leave your comments below!
Thanks for elaborating on this, makes it a bit less obscure for me. I'm a newbee at this, so bear with me, but what would be a reason for miners to choose for the old Legacy chain, or for the new 148 chain? It sounds a bit like a prisoners dillema, if they don't choose what is in their mutual best interest, they both loose, is that correct? What do you think will happen?
The new 148 chain has SegWit activated. This means that the transactions on the new 148 chain will be a lot faster than on the old Legacy chain. The only reason miners wouldn't accept the new chain is pure stubbornness. Some people believe that the old Bitcoin code shouldn't be changed. Overall, I think the new 148 chain is the best option, as it improves the Bitcoin Blockchain.
Also, I believe that there will initially be a chain-split resulting in two Bitcoins. However, the majority of the miners will eventually accept SegWit and the 148 BTC chain will ultimately overtake the Legacy Chain resulting in one Bitcoin again. My advice is to secure your bitcoins and just wait it out. The situation will eventually resolve itself.
Thanks for explaining. Do you think the transition will go well, or are people holding BC at risk in August? And if so, if you had to guess, how big would you say the chance is that things go haywire?
In the end, I think the transition will go well and SegWit will be activated. The majority of the BTC community will, in my opinion, accept SegWit because they are sick and tired of the slow transaction times. This will result in one Bitcoin, and everything will go back to normal. During the transition, I predict that the price of BTC will drop, however it will recover shortly after the activation of SegWit.
I've been hearing about the softfork for a while now but think i understand a bit better now. thanks
ps Having mixed feelings, kind of hoping this dosent happen
Thanks for reading, I'm glad I could be of help. I hope that the soft fork goes smoothly and is accepted by the majority of miners. Having two Bitcoins would be messy, to say the least!
now i understand the mass panic happening to the btc price.