As the buzz for the much awaited Bitcoin chain split termed SegWit2x increases, it necessary for cryptocurrency traders to understand and prepare for the cascading effects of this hard fork on the Altcoins market generally. Before I give further analysis of what to expect pre and post this hard fork, let me explain what SegWit2x really means.
What is SegWit2x
SegWit2x was born following an agreement signed back in May 2017 by a large group of Bitcoin stakeholders in what was known as the New York Agreement (NYA). The agreement represents a consensus to increase the block size of the Bitcoin network from 1 MB to 2 MB.
Originally, the developers of Bitcoin (Satoshi Nakamoto) assigned 1 MB as the limit for block size, however, as Bitcoin became more popular, the Bitcoin network had so many transactions to process that backlogs started to form. Blocks are discovered roughly every ten minutes, but in this time, there were more than 1 MB of transactions, causing some to be delayed until a future, emptier block is mined. This congestion caused delays in the amount of time it took for a transaction to be verified and consequently put more pressure on the senders in a transaction to increase their transaction fees.
The Bitcoin core developers in a bid to solve this challenge, decided to improve the network codes. What they came up with was termed SegWit – short for Segregated Witness. SegWit was implemented on the network in August 2017 and it works by separating the transaction data from the signature data. The result was ramp up as many transactions as possible into a block in this case up to four times. SegWit further fixed a few other bugs within the codes and became a precursor for potential future upgrades to the network.
However, after the implementation of SegWit, certain group of Bitcoin companies and miners were not completely satisfied. They argued that to make the network robust enough, the block size had to be increased from 1 MB to 2 MB. The dichotomy between these two groups led to the Segwit2x hard fork which is expected sometime around November 16, 2017 when block 494784 is mined. Currently 83% (as of block 493,413) of mined blocks are signalling support for the SegWit2x Hard Fork.
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What to expect as a Crypto Trader
Going by previous Bitcoin hard fork experiences, Bitcoin Cash and Bitcoin Gold respectively, a lot of market volatility is expected before and after the fork. The trend is usually marketed by a bullish run for Bitcoin a couple of weeks before the fork date. Majority of the cryptocurrency money moves away from Altcoins into Bitcoin. This is because traders expect to profit by getting an equal amount (on a 1:1 basis) of the new coin on their Bitcoin holding at the time of the split. Several Wallet services and exchanges who support the fork mostly offer this incentive.
Typically these exchanges and Wallet companies take a snapshot by restricting Bitcoin transfer activities 24 hours before the hard fork. So as a trader the idea is to ramp up as much Bitcoin value as possible before that day to benefit from the split. The effect of this action rubs offs negatively on the Altcoins market as many Altcoins typically experience bearish trends this period.
The last Bitcoin Cash and Bitcoin Gold hard fork saw Bitcoin price attain new all-time highs and this one will not be an exception. Currently trading at $7300 at the time of writing this with a new ATH of $7600, there are several indications and predictions that it may hit the $8000 mark before the fork on the 16th of November.
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I have been in the Cryptocurrency ecosystem for about three years. My passion for this niche of financial tech space inspires me to share with you all I can in the world of Cryptocurrency, Blockchain and financial technology.