Ahead of the Bitcoin hard fork launch, fears are largely overblown that SegWit2x hard fork could generate Bitcoin black swan. Let’s review the possible consequences of SegWit2x for Bitcoin.
9 November, AtoZForex – All eyes are on the imminent hard fork of the Bitcoin, Segwit2x, which was scheduled to launch on November 16. Yet the latest news from organizers of the event informs the public about the SegWit2x Hard Fork Date being postponed. However, when the fork will eventually take place, it is very likely to lead to a major price correction of Bitcoin.
SegWit2x Hard Fork could generate Bitcoin Black Swan
The SegWit2x fork could create a Bitcoin black swan event, which could spark huge consequences for the cryptocurrency market. Author Nassim Nicholas Taleb has developed the theory of black swan event, which explains:
“The disproportionate role of high-profile, hard-to-predict and rare events that are beyond the realm of normal expectations.”
Particularly, SegWit2x could be just such an event as the market seems so complacent right now. Despite incredibly contentious hard fork, Bitcoin price remains just below its all-time high. Let’s talk about potential consequences of SegWit2x, which could affect Bitcoin.
Satoshi’s Bitcoin white paper explanation
According to Satoshi’s Bitcoin white paper:
“Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested in it.”
Also, Satoshi explains:
“Nodes always consider the longest chain to be the correct one and will keep working on extending it.”
According to Satoshi’s explanation, Bitcoin is the longest chain. But many analysts do not agree with Satoshi. Also, the core developers of Bitcoin do not support SegWit2x.
Confusion over real Bitcoin
In fact, the SegWit2X Hard Fork might happen under Bitcoin developer’s Song terms. His terms are as follows: 90 percent of mining power supports the new chain and core developers support the legacy chain. In case this scenario is going to take place, markets will dive into the journey of uncertainty.
For instance, consider that one chain will be operating as usual, but with lower fees thanks to the higher capacity. We would assume that this would be the 2X chain.
Then there is the other chain, 1x, which will feature just a tenth of the hash power of the new chain. Along with low hash power, it will also have almost two hours of block time. This would imply that the old chain network would be extremely slow, with its maximum transaction turnout being cut due to the order of magnitude.
Which network would you choose?
What will happen after SegWit2x?
Consequently, the confusion may take place over ‘real’ Bitcoin in the marketplace. In turn, this could possibly cause Bitcoin black swan. Once there will be two different networks, exchanges will assign the name “Bitcoin” and the “BTC” ticker to the old chain and others will give the same set to the new chai. Moreover, buyers will be confused over what they are buying – Bitcoin 1X of 2X?
There is a high possibility of chaos in the first days of the fork. Also, the excess margin will crash the prices of both 1X and 2X Bitcoin.
Eventually, miners will realize that the market turmoil should end before the value of both 2X and 1X networks reaches zero. Consequently, they will attack the 1X chain. If we take into the consideration that 2X miners will enjoy 10x the hash rate of the old chain, the reorg attacks against the 1X chain would be a breeze to execute.
As a result, such attacks could possibly upend huge chunks of the Blockchain, which would compromise the confidence in the 1X network.
What now for Bitcoin?
In fact, the digital currencies marketplace is wildly unpredictable. Moreover, there is just too much money and pride at stake, and almost anything can happen. For instance, both chains could co-exist, one chain could be more valuable, or the fork may somehow avoid altogether. Nobody knows what is going to happen, and markets hate uncertainty.
Taleb’s theory assumes that “high-profile, hard-to-predict” events can have disastrous and long-term consequences. yet, since market participants are aware of the upcoming SegWit2x hard fork, doesn’t it neutralize the ‘hard-to-predict’ aspect of the black swan event?
Yet, in this case, the markets are afraid of not the event itself, but of the outcome. Since markets are expecting the Bitcoin Hard Fork to be a non-event, it actually fits perfectly into the black swan outcome scenario. The high chance of the market confusion and price drop is not expected. This means that if such thing should happen, markets would react with panic.
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