Editor's note - the hard-fork has been called off on 8th November 2017. For more on this, read Stick A Fork In It - It's Done.
Bitcoin has faced turmoil in the past but this is new. In less than two weeks, a massive fight taking place among bitcoin coders will produce a large schism—this could undermine the integrity of the digital currency and undermine its value.
The fight is over a so-called fork in bitcoin’s code, known as SegWit2x, that will create two competing versions of the currency and could lead to disagreement over the “real” bitcoin.
The fork will also mean a payout to existing bitcoin holders. They will receive the same in the new currency as they currently hold in the old one. Any windfall may well be overshadowed by larger turmoil.
What is a bitcoin fork?
Forks represent changes to the bitcoin code that make previous rules valid or invalid. Cryptocurrency forks are code changes, and there are two types of forks that bitcoin enthusiasts refer to: a soft fork and a hard fork.
A soft fork is a code change that is backward compatible; which means the new code can still be interoperable with the legacy code.
A hard fork enables a code change to the software, but it does not have backward compatibility. This means a hard fork is a permanent split from the old code, or version, of the blockchain before the fork occurred.
When is this fork happening?
On the 16th November 2017 around 5:25 PM when block (494784) is mined, the bitcoin code will hard fork into bitcoin and bitcoin2X (B2X).
Why is this fork happening?
There is a disagreement between key coders and stakeholders (large BTC mining companies) over how to improve the core code that runs bitcoin. At a very high level, the fight is over how to upgrade the bitcoin network to accommodate more transactions. B2X (the new code) will double the size of the blockchain blocks allowing quicker transactions. However this is causing a dispute as the smaller BTC community think this is not needed and it is taking bitcoin away from the public and into corporate hands.
From this point there will be two different code bases - the prongs (more of a pitch fork than a culinary fork), but each will share a common history / ledger. This common history is the handle. So we have forked the code and created a new currency that has a different ledger/blockchain to the original bitcoin ledger.
The existing code base that we call bitcoin now, will remain bitcoin - unchanged. The second prong will be called Bitcoin 2X or (B2X) - a completely new currency with new rules and a new ledger. So we will have two different currencies.
Who is supporting the fork?
The main advocates for the bigger blocks, aka B2X, are consortiums of bitcoin miners who use specialized computer rigs to compile transactions on the blockchain—and earn bitcoins (currently valued at around $7,400) while doing so. They argue that the bigger blocks are needed to accommodate the rapid growth of the bitcoin network, and to reduce the rising transaction fees that have come with this growth.
The mining consortiums are being backed by many of the companies that provide the financial eco-system that supports bitcoin. These include certain exchanges, wallet providers, market makers, and storage vaults. The positions of these companies, however, is inclined to shift based on the market and popular sentiment.
Who is opposing the fork?
Opposition is led by a group of developers who maintain the core software that has so far defined bitcoin. Many of them consider the proposed fork as a corporate takeover of bitcoin, and say there are other solutions to accommodate bigger blocks.
Who will win?
This is the thing, no one really knows. And this is why it is so dangerous. Coinbase have said that the existing (“old”) code will retain the bitcoin brand and bitcoin 2X will be called B2X. However, this has been disputed in some channels. Coinbase have also stated that they will support both versions initially but eventually will support the fork with the most community support and strongest blocks.
There is a strong faction in the underground that believes the old bitcoin will come out on top - this belief is shored up by Coinbase saying that the old code will keep the bitcoin name - and this group is predicting higher prices for the old bitcoin. Realistically no one knows for certain.
Do we get more currency?
Yes. If you have a public and private key in your bitcoin wallet, or you work directly with an exchange like Coinbase, you will get an equal amount of B2X as you had bitcoin. Woohoo! Sounds like free cash! Well I don’t think so. I have a feeling one of the currencies will be ditched and quickly. Also that the overall price of Bitcoin will go down following the fork.
How do I stay safe?
This is all my personal opinion. So please no one bet their house on it. I think I read that someone sold their house and all assets to invest in bitcoin… Speechless.
I am thinking one or more of the following four tactics (but then, I don’t have much to play with).
1 - Just hold on. HODL onto your bitcoin. Ride out the next few months and collect the anticipated gains to $11,000 in 2018.
2 - Get your free B2X and ditch all your bitcoin to a smaller altcoin. Ride out the next month or so on the smaller coins. Then re-invest in the ‘real’ bitcoin when it is a bit lower and has the full community support to power onwards and upwards.
3 - Ditch all your coin now into cash and re-invest when the ‘real’ bitcoin is low.
4 - Ditch what seems to be the worst performing coin between bitcoin and B2X. And invest the rest in another altcoin (such as ether, litecoin, monero).
To wrap up
The safe bet in the long run is to hold on to your coin if you're not planning to get out completely. Playing the market is a risky game at the best of times, so now is not the time to be fiddlig with fire!
I see bitcoin or similar cryptocurrency as the future of money. Only massive cybercrime or government enforcement or terminal developer squabble will be able to stop it.
Whatever you do, don’t risk more than you can afford to lose, enjoy the ride and remember sometimes just holding on is more than good enough.