A Potential Hard Fork And How To Prepare
A Message from Coinsecure’s CTO:
If you’ve looked at the news around Bitcoin over the past few weeks, perhaps you’ve read some articles around a potential hard fork.
In summary, a Hard Fork is a permanent divergence in the blockchain. If a Bitcoin Hard Fork happens, then it is possible that the older Bitcoin blockchain will be scrapped in place of an upgraded one. This means that all nodes, whether those of miners, merchants or users, will need to upgrade to the new nodes to be able to validate the new blocks. This is necessary as non-upgraded nodes will reject blocks created by upgraded nodes. .
Many developers see risks to the ecosystem with a Hard Fork and would prefer a Soft Fork if and when it is needed. Soft Forks are self-correcting and backward compatible therefore if majority of miners update to the new consensus rules, even old nodes will recognise the new blocks as valid. In a Soft Fork every user or node will not need to update to accept the new consensus rules but will continue validating transactions. You can read more into specifics on our September blog post here.
Proponents of Bitcoin Unlimited are pushing for a hard fork to increase the Bitcoin block size. We can admit, that the Bitcoin network has not operated as quickly as it used to and there certainly is congestion in the network, but how can there be a safe solution?
The Bitcoin Unlimited team has recently been criticized by former proponents as not having sufficient development expertise.
The next alternative to Bitcoin Unlimited is Segwit, supported by the Bitcoin core development team. Segwit (Segregated Witness) would be a temporary fix to the current congestion and to most in the Bitcoin community is more of a decentralized solution, not controlled by miners. Bitcoin Unlimited gives the mining community authority to increase the blocksize when needed.
Potential Challenges of a Hard Fork
It is yet to be seen exactly what may happen if there is a hard fork, but here are some potential issues that can come about from a hard fork. Firstly, a hardfork will split the mining power so that both chains end up with lesser hash rate than before the fork. This reduces security of both the chains. Secondly, this opens up the possibility of “cross-chain replay attacks”.
Put simply, if one fork has a valid transaction, then that transaction will most likely be valid on the other fork too (at least in the beginning). The concern is that the transaction could be 'replayed' into the other fork, and havoc could ensue. We can imagine a transaction from the 'main' fork coming to the 'old' fork, or the other way around and people may find their coins on one of the forks being transferred without their consent.
It is always a best practice to store a majority of your Bitcoin in cold storage. We recommend that you store only a small amount of your Bitcoin on web wallets, for example, the amount that you would need to spend for quick transactions. We recommend that you keep everything else offline.
If the hard fork happens, Bitcoin Core and Bitcoin Unlimited will become two separate coins and will be incompatible, leaving exchanges to choose which coin to offer.
How Coinsecure is preparing for a potential hard fork
Our goal is to ensure the safety of customer funds. If a hard fork does take place, there is a chance that Coinsecure will need to suspend all deposits and withdrawals on the exchange platform for a short period of time until we confirm that there are no risks of replay attacks, network instability, or technical risks.
If there is a hard fork, there is a chance for two coins, Bitcoin (BTC) and Bitcoin Unlimited (BTU). We are not sure how development will fully play out, but we plan to keep our BTC exchange running until we have a clearer sense of the movement of BTU if there is a fork. If the market calls for it, we will provide BTU withdrawals to end users.
We aim to keep you, our valued customers, updated as soon as we have more information.
