Adam Back on Bitcoin Scalability, the Dangers of SegWit2x, and the Future of the Sidechain Technology

Adam Back on Bitcoin Scalability, the Dangers of SegWit2x, and the Future of the Sidechain Technology

SegWit2x, a Bitcoin hardfork expected to become effective this November, is among the most talked-about and somewhat disputable matters in the community. ForkLog talked with Adam Back, the CEO of Blockstream and one of the world’s leading Bitcoin developers, to find out what’s that dangerous about it, and how to prepare yourself for that.

We met with Mr. Back at the recent Hackers Congress in Prague’s Paralelni Polis where he also spoke on the issues of Bitcoin’s privacy, fungibility and scalability (video available here).

Aside from SegWit2x, we also managed to talk about the recent emergence of Bitcoin Cash, the exchanges’ stance towards the fork, and the role of full nodes in the ecosystem, as well as the sources of today’s ideological standoff in the community, and the sidechain technology Liquid that Blockstream has been developing for a few years now.

Photo: Pavel Sinagl, Paralelni Polis

ForkLog: Blocksize debate is the hottest topic at the moment. Tensions are high, and one of the latest big news was about Bitfinex making a statement on possible SegWit2x fork. At the same time companies like Coinbase still failed to express their position clearly. What’s your view on the current situation on the market?

Adam Back: Any exchange has two basic possibilities; one is to support two tokens, something that Bitfinex is proposing. The first thing they announced was futures contract, and the second thing was about how they handle the hardfork. Basically, they are not intending to change the ticker, so Bitcoin stays BTC, and the new fork becomes B2X. They also said something interesting which is, that even if B2X would get more hashrate they would still consider Bitcoin as BTC.

I personally think it’s a good decision because otherwise things would be confusing for someone who is not following the events closely. If some people have Bitcoin in their investment portfolio or they bought it a long time ago, they might be not tracking it and it’s very confusing and concerning if its name changes. I mean, you thought you owned it, then you look at it and you see the price has changed. I think there were cases when people bought the wrong coin because the name was confusing, like Bitcoin Cash. There were two tickers, they tried to choose BCC, and it was the coin that already existed [Bitconnect – ForkLog]. So it’s important the name is unambiguous for users who are not technical experts.

I think Bitfinex’s point is that they are not taking sides so that they don’t confuse people that trade. They have to be unambiguous and they don’t want change the name of the traded token. Some other exchanges seem to be undecided on what to do yet.

So far there hasn’t been too much volume on the future contract, but it’s looking like Bcash with the forked coin value being maybe 25 per cent at the best.

The bigger question is, if it continues it will get very confusing for users. You have to be sure that if you go to a shop and pay with Bitcoin, you don’t pay to a Bitcoin Cash address or Bitcoin2x address. If this happens someone has to reverse it, to do things manually to undo the mistake. And, of course, it gets worse with the replay attack protection when you can see transactions on both chains. So, it seems like it is going to create a lot of work for a lot of people, and confuse a lot of people.

FL: At some point B2x developers rejected the very idea of implementing the replay attack protection, then it looked like they were willing to change their minds. Still, there’s plenty of confusion and contradicting reports.

A.B.: Well, they implemented something, but it looks like they are going to change it again. There were discussions that they were going to change it to a different mechanism. So what I think possibly might happen is it will be like what happened with Bitcoin Cash. Originally they didn’t want any replay protection at all and said ‘no’, but then a number of exchanges said “Hey, we won’t list it if you don’t have replay protection.” So just days before the launch they added replay protection. It was kind of dangerous in terms of not much testing. But it looks like the 2x development guys, mostly Jeff Garzik, are thinking about it. Yesterday I saw Jeff talking about using a special address that is intentionally invalid on the 2x chain so you could send to it to split coins. But it looks like they are considering changing it.

Photo: Pavel Sinagl, Paralelni Polis

FL: All this might sound too complicated to regular users.

A.B.: That’s the thing, right? It’s a lot of work for the companies, but they have programmers. So what this means to regular users like you and me? It took me a lot of time to split my Bcash coins and I was very nervous inserting my keys because I didn’t know if the software was good and it’s the same keys that control Bitcoin. So there’s a high possibility that people will lose money in that mess. Also, 2x is even worse than BCash. BCash at least had replay protection and its transaction format is intentionally different from Bitcoin.

FL: So what is most likely scenario comes November?

A.B.: Well, if nothing changes, I guess people will run split software, and exchanges will suspend trading, deposits and withdrawals. This will protect the exchange environment, but for all the people with smartphone wallets or HD-wallets, they’ll all have to read FAQs and ask the technical teams to help them to figure out how to be safe after the fork. So indeed, it’s quite complicated for many people.

FL: Could there be risks that some companies, BitPay for one, could lose some part of their business after making statements on SegWit and SegWit2x and urging users to upgrade their software to the BTC1 client? People know BitPay as big processor which allows you to pay with Bitcoin, and I guess some users could be unprepared for such developments.

A.B.: Presumably, they will have to support both. There are a lot of shops receiving Bitcoin, and when people come to a shop and they want to pay, they find 95 percent of the shops don’t accept what they want to spend. So I think they will have to accept both. It will be pretty confusing otherwise. Also, if they don’t change the address format, I don’t know. Bitcoin Cash made replay protection, but still there were a lot of people who sent Bitcoin to BCash addresses, and the other way around.

Basically, I don’t think many companies involved will have the time and resources to prepare for the fork between now and November. A number of them still don’t support BCash, and that was a while ago. And it was easier with BCash. There are exchanges where they are still holding your BCash.

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