Don't Panic, just HODL : [August 1] Soft fork or Hard fork is good for Bitcoin !!

aqfaridi (38)in #bitcoin • 7 years ago (edited)

Hey folks,

Lets first understand what's soft fork and hard fork means in blockchain.

Block Chain:

The Bitcoin blockchain is Bitcoin’s distributed public ledger which maintains record of transactions in each block with each block referencing the block that preceded it. Currently, the blocksize is of 1MB containing :

Block header (meta info)
Block body (contains multiple transactions and each transaction having IN_ADDRESS/OUT_ADDRESS/AMOUNT with Signature and Public Key )

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Here, Merkle Root is paired hash of all transactions in a block.

Consensus Rules: Soft Fork and Hard Fork
There are certain validation rules which each node has to follow for validating blocks in bitcoin network which is known as Consensus Rules. When new Bitcoin Improvement Proposal(BIP) is to take place then these consensus rules need to be changed accordingly.

Now, Nodes which follow Old Consensus Rules for a period of time are called Non-upgraded nodes in contrast to Upgraded nodes which follow New Consensus Rules. This conflict between nodes will create two scenerios :

Soft Fork
A block violating the new consensus rules (OLD Block) is rejected by upgraded nodes but accepted by non-upgraded nodes. It's possible to keep the block chain from permanently diverging if upgraded nodes control a majority of the hash rate. If non-upgraded nodes continue to mine blocks, the blocks they mine will be rejected by the upgraded nodes. This is why soft forks need a majority of hash power in the network.

A softfork is a change to the bitcoin protocol wherein only previously valid blocks/transactions are made invalid. Since old nodes will recognise the new blocks as valid, a softfork is backward-compatible.

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Hard Fork
A block following the new consensus rules(NEW block) is accepted by upgraded nodes but rejected by non-upgraded nodes. A permanent divergence in the block chain, occurs when non-upgraded nodes can't validate blocks created by upgraded nodes that follow newer consensus rules.

Screen Shot 2017-07-16 at 5.02.42 AM.png

Segwit BIP148 proposal:

As we know, now-a-days bitcoin network is facing scaling issue, It takes hours or even days to confirm the transaction at more transaction fee.To tackle with this problem,

Signature part is segregated (removed) from Transaction Block and moved to Extended Block(Ext Block) which results in decrease of size of transaction as signature was taking more space in a main block. SegWit increases the volume of transactions that fit into each block without raising the block size parameter. - soft fork
Increase size of block to 2MB. - hard fork

SegWit2x includes a working version of the software, which combines two changes, the scaling optimization SegWit and an increased 2MB block-size parameter.

Hard fork will take place after activation of SegWit, when 95 per cent of mining capacity signaled their support within any of 26 scheduled two-week periods, SegWit would activate, you can track SegWit activation here

SegWit2x is being deployed in its testnet to all working group members on July 14, and the period for live adoption starts on July 21, with an August 1 deadline for necessary support to avoid issues.

These improvements are good for Bitcoin in long run, Price is falling due to Fear, Everyone wants to convert BTC to Fiat currency/USDT/Altcoins.

If Hard Fork happens, you will get corresponding number of NEW_BITCOIN as of BTC whatever be the price, So it will be risky in short term but in long term, price of both BTC or NEW_BITCOIN collectively will bound to rise.

DON'T PANIC SELL ANYTHING, ACT SMART- If you know market will be bearish, get ready to SHORT

Ideally, What should be the right approach: Don't put all your eggs in one basket