Alert: Bitcoin Event SegWit2x Cancelled
To be truthful, all I wanted to do this week was work on organizing the Crypto Castle interview questions. But the digital currency market had no interest in giving me a peaceful workweek.
This week marked the final week before the decisive SegWit2x event. SegWit2x has been driving market interest in Bitcoin for the past couple months, with many investors speculating on which token produced by the split would prevail as Bitcoin.
This event is so major that it has stirred up obscene amounts of press and panic.
But SegWit2x didn't cause all the panic this week.
On Wednesday, Parity Technologies, the provider of major software wallet Parity, issued an alert that a large sum of Ethereum was frozen, effectively rendering a portion of the world's Ethereum useless.
In its latest statement, Parity Technologies said 573 users have been affected by the freeze. I am going to explain a bit more about what happened in a minute.
But first, I need to highlight another major event (possibly more major than the Parity freeze).
Also on Wednesday, it was announced that SegWit2x was cancelled. You heard that right. The major event driving Bitcoin interest and speculation was just kicked to the curb. Bitcoin's price surged in the wake of the announcement before falling sharply.
At the time of writing, Bitcoin's price is below $7,000, a number it blasted past in just a few weeks.
Over the course of this email, I want to explore both events. Both of these events highlight the "ever-changing" nature of digital currency. From them, investors can learn how major events shake the market.
So, let's start with Parity.
Ethereum Locked Away Without a Key
In honesty, the loss of $280 million in ether was an accident.
At least, that is what the developer, an unnamed individual going by the screen name devops199, is claiming.
Devops199 turned the library contact into a multi-sig wallet that he/she then owned. Realizing what had happened, said developer deleted the code.
If you aren't a computer scientist, don't worry about the details. Just know that devops199 deleted a piece of code that all wallets must access to withdraw. Without this code, all of the money is currently stuck — potentially forever. And what allowed this to happen was a bug in the Parity system.
Wallets and initial coin offerings that took place past July 20th were affected.
That is not good news for users or companies who raised capital through an initial coin offering recently. This includes Polkadot, a major initial coin offering headed by Ethereum co-founder Gavin Wood. In its initial coin offering, Polkadot raised $145 million. Now, $98 million worth of that fundraising is locked away because of the Parity vulnerability.
This is a major market event that caused a price reaction. Ethereum dipped from $305 to $290. It has since recovered, more than likely from the cancellation of SegWit2x, the next and perhaps more important topic I would like to break down.
You see, what happened with Parity Technologies happened because of human error. In this case, that error cost people quite a bit of money. The total amount is still being calculated, but currently it looks like $280 million in ether was affected.
SegWit2x is not a market event caused by an error. Some may argue that the whole idea was an error. In reality, SegWit2x was a proposal intended to fix Bitcoin's scaling issues, increasing blocksize.
Its cancellation could mean big things for the market, especially considering it drove Bitcoin interest for so long.
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SegWit2x: Bitcoin Didn't Break Up with Itself
When I saw the SegWit2x news, I laughed. I felt like Parity Technologies had a bad week and said, "Hey we had a goof," and then Bitcoin, sensing that it was somewhat out of the spotlight, puffed out its chest and said, "Hold my beer. I'm about to make things dicey."
In reality, the cancellation of SegWit2x was probably a good thing for the Bitcoin community.
A group of backers for the SegWit2x hard fork — tentatively scheduled for November 18th originally and then November 16th — decided that the action was to rash, too risky when so much depended on the outcome.
These members include Mike Belshe, Wences Casares, Jihan Wu, Jeff Garzik, Peter Smith, and Erik Voorhees.
On Wednesday, November 8th, they posted the below statement.
Our goal has always been a smooth upgrade for Bitcoin. Although we strongly believe in the need for a larger blocksize, there is something we believe is even more important: keeping the community together. Unfortunately, it is clear that we have not built sufficient consensus for a clean blocksize upgrade at this time. Continuing on the current path could divide the community and be a setback to Bitcoin’s growth. This was never the goal of Segwit2x.
As fees rise on the blockchain, we believe it will eventually become obvious that on-chain capacity increases are necessary. When that happens, we hope the community will come together and find a solution, possibly with a blocksize increase. Until then, we are suspending our plans for the upcoming 2MB upgrade.
We want to thank everyone that contributed constructively to Segwit2x, whether you were in favor or against. Your efforts are what makes Bitcoin great. Bitcoin remains the greatest form of money mankind has ever seen, and we remain dedicated to protecting and fostering its growth worldwide.
In the aftermath of the cancellation, futures of Bitcoin2x (as named by Coinbase), a coin that will now never exist, slumped 70% in value. It didn't take long until it was worth nothing.
The price of Bitcoin itself jumped to an all-time high of $7,888 and then fell, with funds surging into other altcoins like Ethereum, which jumped up to $330.
As you can glean from the statement above, canceling the fork is not a long-term solution for Bitcoin.
Rather, the cancellation is a short-term decision. Inevitably, Bitcoin's scaling solution must be addressed. In order for Bitcoin to achieve dominance as a technology, especially with so many faster, younger versions nipping at its heels, it needs to improve.
More than likely, the crypto market will continue to face events of this scale until the market matures. Bitcoin needs to establish itself as either a currency or an asset. In doing so, underlying flaws in the technology need to be addressed. This doesn't mean investors should flee the crypto space, but it does mean they should remain vigilant of important events.
In the coming weeks, Bitcoin's price may slip as fork fever dies down. On a positive note, as Ethereum demonstrated, that money may flood into altcoins.
If you are curious about digital currency and want to learn more, make sure to check out our digital currency training service. With this service, you will receive monthly updates on major events with the potential to move the markets, technology spotlights, and a FREE 44-page e-book detailing the top digital tokens on the market.
For now, keep an eye on your inbox for more digital currency updates.
Until next time,
@AlexandraPerryC on Twitter
Alexandra Perry is a contributing analyst for Wealth Daily and Energy and Capital. She has multiple years of experience working with startup companies, primarily focusing on artificial intelligence, cybersecurity, alternative energy, and biotech. Her take on investing is simple: a new age of investor can make monumental returns by investing in emerging industries and foundational startup ventures.
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