The Path Forward
Now that Segregated Witness(SegWit) is finally a reality for Bitcoin, what does all this mean and where do we go from here? I am sure many of you, like me, have heard that SegWit is what Bitcoin needs to scale in a safe and sensible way. You may not have heard much of the dissenting opinion if any at all. I wanted to put out a post on Segwit and the path forward taking a neutral stance. I think it is important to hear both sides of any debate and I don’t see the dissenting views being represented much in the crypto space. There are some serious questions I would like to see answered before we just accept this new path forward for Bitcoin.
SegWit Is In The Wild
SegWit was activated on the BTC chain Aug 24th 2017 after over 2 years of debate. It has been fascinating as well as frustrating to watch this process unfold. Fascinating in the sense that random groups of developers can come together across the globe in a decentralized manner and construct innovative software solutions to very difficult networking problems. Frustrating in the sense that so much FUD(fear, uncertainty and doubt) has been on full display across Reddit, Twitter and the like, which rings of juvenile bullying and fear mongering. I really wish people could just take a stance, put forth their efforts and then step back and let the best project(s) flourish.
Many people thought that SegWit would be automatic after its activation, such that if you wanted to continue to transact on the BTC chain instead of the new non SegWit chain known as BCH or Bitcoin Cash. This is not the case. If you want to take advantage of the SegWit “discount”, then you have to send your BTC to a new P2SH-P2WPKH(Pay 2 Script Hash-Pay 2 Witness Public Key Hash) address. These addresses look identical to a BTC multi-sig address which will always start with a “3”. Here is an example of what I am talking about. I made this key pair at segwitaddress.org. PLEASE DO NOT USE THIS EXAMPLE ADDRESS AS THE PRIVATE KEY HAS BEEN SHARED. THIS IS FOR EXAMPLE PURPOSES ONLY.
Exchanges and other wallet services are starting to implement this new scheme into their wallets. I sent some BTC to my Kraken account the other day and it automatically generated a SegWit address for that transaction. If you own a Trezor or a Ledger hardware wallet you can now take advantage of what SegWit has to offer. For the Trezor try this, and for the ledger try this. As I understand it, you can use the new SegWit addresses or keep using the old non SegWit addresses now knows as “legacy addresses”. There have been many people posting on Twitter and Reddit about these new lower fees that can be had with using SegWit. These new SegWit BTC transactions fees seem to be far lower than $1USD.
If you would like to see just how many SegWit transactions are going through the network at any given time, check out segwit.party. This new trickle of SegWit transactions may be leading to the shrinking Bitcoin’s memory pool(mempool) as well as lower legacy BTC transaction fees. At the time of this writing bitcoinfees.21.co is suggesting an average fee of around $2.50. That is down substantially from around $4.00 to $9.00 reported just a couple of weeks ago. BTC’s mempool is down to around 5k transactions as well. This is way down from over 120k transactions over a month ago.
So Whats The Big Deal Isn’t This Great News?
So far most of what is being reported is that this is great news for Bitcoin(BTC). Many are saying that SegWit will keep Bitcoin decentralized and that the next step is to implement Lightning Network to scale much further off chain. Because no one has challenged any of these ideas at a technical level, most of us just accept all of these ideas as facts. To be fair, Segregated Witness(SegWit) and Lightning Network(LN) are really cool and a cleverly innovative designs to a scaling approach, but what are their downsides or the trade offs?
Not many have spoken out against SegWit or LN on any real technical level. There was of course Craig Wright’s speech this last summer at a Netherlands Bitcoin Conference. This was the first time I had heard anyone speak out against SegWit and LN with arguments that seemed to be rooted in well thought out mathematical proofs. I am still waiting for someone to mathematically refute what Mr. Wright said in that speech about transaction malleability and Turing completeness that seem to contradict what most people say on this topic. Until I see that I must consider what he said.
There seems to be another well spoken, intelligent voice in this camp as well. This person goes by the pseudonymous identity known as Jonald Fyookball. This mysterious figure seemed to show up earlier this year with various blog posts on Medium.com which seems to be his platform of choice. His articled titled “Why does Bitcoin have Ridiculously High Fees and Slow Confirmations?” raised the following questions for me…
- Would lightning Network’s payment channels really just create centralized hubs, making BTC more centralized?
- Won’t moving all fees off chain create a security issue down the road when mining becomes less profitable with just the block reward?
- What permissions will you need to move your pegged side chain assets from side chains to BTC chain and vice a versa? If this was really Bitcoin there would be no permissions or questions.
- Doesn’t Lightning Network make Bitcoin a settlement layer and not a P2P cash system which is what Bitcoin has always been?
In another post titled “Mathematical Proof That the Lightning Network Cannot Be a Decentralized Bitcoin Scaling Solution” Jonald gives a great into to Lighting Network explaining its evolution out of the Bitcoin Core team. He then proceeds to explain step by step the bi-directional channel method of which LN will work. After reading this article I was left with some more questions about Lightning Network…
- Will it only work if large sums of BTC are locked up ahead of time to connect to a user multiple hops away?
- If the answer to question #1 is yes, wouldn’t this require a fundamental change to the way people spend money today?
- Wouldn’t this network just become a series of large centralized hubs after we get over 1 million users because of the notion that people wouldn’t be able to realistically fund enough hops to reach their destinations?
I am not saying the SegWit or Lightning Network are doomed to fail or even be a dead end, but I must say I do have questions that need to be answered before I will accept them as gospel. For now I have been holding both BTC and BCH in relative equal amounts as I see the potential for either to be the main Bitcoin chain in the future. I feel as a pragmatist I must not get emotional or attached to the idea of either of these or any crypto currency for that matter. What bothers me most of all is all of the low level, disgraceful back and forth bashing I see on Twitter and Reddit these days. Even some of the biggest leaders in this space that I have looked up to over the years have been engaging in such exchanges. I would think people would have more self respect but I guess not.
The fact is that SegWit is here and Lightning Network is coming. I honestly hope these things will be a success and any issues that may come up can be worked out relatively quickly. I do not wish nor want the Bitcoin Core developer team to get it wrong. I also acknowledge that BCH or Bitcoin Cash is here and alive and well. I also wish for their success and hope that this chain can continue for years to come. I will continue to monitor each project taking in new information as it becomes available to make my decisions going forward. I reserve the right to change my mind at any time based on this new information. If anyone has answers to the questions I have outlined above please post. Let talk about this! I wish everyone the best of luck and I raise my glass to your success!