The organizers of a controversial bitcoin software update are suspending their attempt to increase the block size by way of a hard fork.
The suspension was announced by SegWit2x project lead Mike Belshe in an email distributed to the SegWit2x mailing list, but it also bore the signatures of Wences Casares, Jihan Wu, Jeff Garzik, Peter Smith, and Erik Voorhees. Interestingly, the statement was not signed by Barry Silbert, whose Digital Currency Group was instrumental in organizing the New York Agreement (NYA) that set SegWit2x into motion.
The agreement had called for both the activation of Segregated Witness (SegWit) and an increase in the blocksize to 2MB. SegWit activated earlier this year, although it is debatable what role the NYA played in its implementation. However, the blocksize increase never achieved consensus, and the debate became increasingly vitriolic as the approximate November 16 date for the hard fork approached.
At this point, nearly everyone was resigned to a scenario in which Bitcoin would split into two competing blockchains. However, those fears were dashed on Wednesday, as Belshe shared that the developers and promoters of the protocol upgrade were concerned that activating the hard fork could prove to be a “setback to Bitcoin’s growth.”
From the statement:
“Although we strongly believe in the need for a larger blocksize, there is something we believe is even more important: keeping the community together,” Belshe wrote. “Unfortunately, it is clear that we have not built sufficient consensus for a clean blocksize upgrade at this time. Continuing on the current path could divide the community and be a setback to Bitcoin’s growth.”
The markets have responded with a dramatic surge into new all-time highs. Following the announcement, bitcoin saw a spike of approximately $500 USD in less than one hour -signifying a highly bullish reaction to the news. As of this writing, the price of bitcoin is consolidating above the preceding all-time high at approximately $7700 USD, after having established a new all-time high of $7900 USD.
Bitcoin’s rapid price swing indicates a potential conflict between the short- and long-term impacts of SegWit2x cancellation. The hard fork would have split Bitcoin into two competing blockchains, and the fight for supremacy would have been ugly. Bitcoin services expected to undergo serious disruptions, and there was a high probability that some users would lose funds due to replay attacks and other exploits.
However, some analysts had speculated that the impending activation of SegWit2x was actually propping up the bitcoin price in the short-term and contributing to its growing market share. The reason for this is that a blockchain split would have effectively resulted in the creation of a new cryptocurrency, providing current bitcoin holders with “free” coins on the second blockchain. Because SegWit2x activation appeared certain, traders may have already priced in the value of these “crypto dividends” and increased their bitcoin positions accordingly. Now that the hard fork has been suspended, they may transfer some of that capital back into the altcoin markets.