Summary

Under Bitcoin Improvement Proposal (BIP) 148, Bitcoin will be undergoing a user activated soft fork on August 1, 2017.

There are three possible outcomes of the soft fork, although the exact outcome is unknown as the outcome will depend on the actions of the nodes on the network.

In a worst case scenario, BIP 148 could cause Bitcoin to chain split into two separate blockchains, one with SegWit activated and one without.

Before we get started, let me try and define some very important terms, which I hope will make it easier for me to fully convey what exactly is going to happen on August 1st.

Hard Fork – A hard fork is a permanent divergence in the blockchain, that occurs when non-upgraded nodes can’t validate blocks created by upgraded nodes that follow newer block validation rules. This can be caused by a change in a blockchain’s protocol that makes previously invalid blocks/transactions valid, and as such requires all nodes or users to upgrade to the latest version of the protocol software. This essentially creates a fork in the blockchain, one path which follows the new, upgraded blockchain, and one path which continues along the old path. Generally, after a short period of time, those on the old chain will realize that their version of the blockchain is outdated or irrelevant and quickly upgrade to the latest version.

Soft Fork – A soft fork is a change to the bitcoin protocol where some previously valid blocks/transactions are made invalid, and the rest of the previously valid blocks/transactions are kept valid. Old nodes will still recognize the new blocks as valid. Soft forks don’t require any nodes to upgrade since all blocks with the new soft-forked rules also follow the old rules, therefore old clients accept them. This kind of fork requires only a majority of the miners to upgrade in order to enforce the new rules.

Martin YK LiMartin YK Li
Cryptocurrencies, tech, long-term horizon
Originally published @ Seeking Alpha

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