You may have heard the recent talks about the Bitcoin hard fork possibility. Indeed, there have been quite a few indications of it happening in the near future. Before, and if, it happens, we wish to explain several things. What does hard fork mean; why can it happen; what implications might it have for you as our customer?
First and foremost, stay calm – at the moment, the chances of a Bitcoin hard fork happening are pretty slim. We continuously monitor the Bitcoin ecosystem and will definitely warn you if the likelihood of the fork increases. Nonetheless, we strongly believe that knowledge and education are an absolute must to make well-informed decisions, which is why we have written this post.
Scaling Dilemma and the Bitcoin hard fork
The Bitcoin network operates based on consensus of all participants in the network. Any time someone tried to make an invalid (fake) transaction that does not adhere to consensus rules, the rest of network participants would reject it. For this reason, it is paramount that everyone in the Bitcoin system follows the same rules about what kind of transactions are considered ‘invalid’.
Currently, the Bitcoin network is capable of processing 7 transactions per second, or roughly up to 25,000 per hour. However, the numbers of people who want to use Bitcoin keep growing at a very, very healthy pace. When there are more transactions than the Bitcoin network can process, the ones with the lowest attached transaction fee, are placed in a queue.
Bitcoin transaction fees in Jan-Feb 2017. Source: Twitter. Data: Blockchair
As a consequence of this queue, the average transaction confirmation time increases; therefore, to get your transaction confirmed quicker, you have to pay a larger Bitcoin network fee. Therefore, as many Bitcoin users are keen to have their transaction confirmed quicker, the average Bitcoin transaction fee increases. Although this is not a big concern for those who use Bitcoin for large payments, the people using Bitcoin for small transactions are getting hit hardest by the increased fees.
There are several technical proposals on how to scale the Bitcoin system; however, the community has divided opinions on which method would work best. Such differing viewpoints may, indeed, produce a network split; that is, the Bitcoin hard fork.
‘How would this happen?’, you may ask. In case part of the Bitcoin network chooses to adopt one way of scaling, while the rest of the network chooses another scaling method, they will no longer be compatible. Simply put, if the consensus rules, which we discussed above, are changed, from that moment of change, the network will split in two.
What happens if the Bitcoin network splits?
Again, the chances of a network split happening are still quite slim. But they are there.
If the hard fork does happen, the amount of bitcoins you possess will remain the same, but you will also have the same amount of bitcoins on the network that separated from the original chain.
Let us use an example. You have 0.5 BTC, and the network suddenly splits into Bitcoin1 and Bitcoin2. As a result, you will now have 0.5 BTC1 and 0.5 BTC2. Although you may feel that this could be beneficial to you, in an event such as this, the combined value of both coins (BTC1 + BTC2) will likely fall below the original value, as measured in EUR / USD, that BTC had prior to the split.
What should you do?
If you are currently receiving payouts in EUR or USD, then you do not need to take any action. We guarantee the amount of EUR / USD you will receive whether the network stays intact, or splits.
If you receive payouts in BTC, then we strongly recommend that you keep an eye out for developments in the Bitcoin world. It is very likely that, at the time the split happens, we will suspend all withdrawal requests. The withdrawal halt may take 24 – 72 hours, but potentially longer, depending on what happens after the split. We may or may not support both chains if the split happens, which is why we encourage you to withdraw bitcoins from CoinGate to your own Bitcoin wallet before the split.
Let us repeat ourselves again: a Bitcoin hard fork happening in the nearest future is unlikely. We suggest that you remain alert, but there is absolutely no need to rush withdrawing and/or selling your bitcoins. We will continue to monitor the situation and will inform you about future developments.
The CoinGate Team
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