This move ushers in a new era for cryptocurrency.
“SegWit is actually something we’ve been waiting years for,” Elizabeth Stark, CEO and co-founder of Lightning Labs, told International Business Times. “This is the Netscape moment for bitcoin.” The birth of the internet as we know it today is probably the best analogy for what just happened with the bitcoin network. Sure, the internet’s foundational technology was already getting scientists excited by the 1970s. But it took several decades for the concept to go global and impact average computer users. Blockchain technology, on the other hand, is networking on steroids.
Today the bitcoin market cap alone is estimated to be worth more than $68 billion, not to mention other cryptocurrencies. Now SegWit is fixing one of bitcoin's oldest bugs plus making the blockchain network faster, stronger, and easier to build up with more diverse solutions. Blockchain enthusiasts who dream of having billions of fellow bitcoin users can finally get the party started.
“I like to compare it to the World Wide Web of bitcoin, where transactions can link to other transactions without having to confirm on the blockchain,” Eric Lombrozo, Bitcoin Core contributor and CEO of Ciphrex Corp, told IBT. “You can link to other sites and you don’t need to host everything on your own webserver.”
Lombrozo thinks SegWit will allow for exponential scaling. Plus, even without nifty new features, he said all the bitcoin wallets updated with SegWit will immediately be able to handle twice the number of transactions, so from between 5 to 7 transactions per second now to 10 or 12 transactions tomorrow, depending on the transaction type. More important than the incremental boost is the myriad of new doors this technology opens.
In the early days of the internet, there were only a few university computers connected to one network. Similarly, bitcoin developers who were first chained to the mainframe can now add new network layers, new features, new portals, all without needing permission from that godfather network’s consensus.
“In the longer term, it allows for better protocols to be designed,” Lombrozo said. “We need to be able to have these other layers.” Those layers, like the Lightning Network, could theoretically help boost bitcoin’s global capacity to a volume comparable with Visa and Mastercard, if developers throw their backs into it. Like everything else with bitcoin, the real outcome will be determined by how community developers spend their time. Eventually, secondary layers could also enable swaps between cryptocurrencies and more complex smart contracts.
Imagine a future where parents can set up bitcoin wallets for their teens that only lets kids spend a designated allowance per day when certain conditions have been met. Let's say you’re buying a house for this little family of yours, including the teen who has to email his homework to the professor before he can play new videogames paid for with Lightning-enabled micropayments. Meanwhile, your entire escrow process doesn’t require a scrap of bureaucratic paperwork. The smart contracts themselves automatically release bitcoin payments and transfer ownership after electronically verifying records and holdings.
Instead of going to the bank and dealing with paperwork, you go out for ice cream. You leave your wallet at home, just taking your phone in your pocket. Thanks to SegWit paving the way to internetwork compatibility, your mobile wallet easily swaps bitcoin for litecoin to quickly pay the ice cream parlor with just an itty bitty transaction fee. There’s no need to hold multiple currencies when you travel any more. Plus, paying with your mobile wallet is less risky than using a credit card.
In this future, you never give identity theft or chargebacks a second thought because blockchain technology has pretty much eradicated those problems. This scenario is only the beginning of what SegWit could enable in the near future. SegWit-powered cryptocurrency could make managing money a whole lot simpler.
Some critics argue SegWit trades immutable security for convenience. The vast majority of experts reject this idea outright. “There’s been no compromise whatsoever,” Lombrozo said. “This idea has been very, very, very well tested...in the wild with actual, real money.” Litecoin has already been experimenting with SegWit and second-layer solutions like the Lighting Network for several months. “We’ve been testing SegWit for over a year,” Stark added. “Thorough testing by the smartest minds in the community. We don’t have any concerns.”
In the months leading up to activation, SegWit became highly divisive. Some developers are now trying to push forward an update called segwit2x. Don’t be fooled by the name. Most experts do not consider segwit2x to be an organic successor to SegWit. Nor is it the compromise between SegWit camps that it was intended to be, at least according to what multiple experts told IBT. Segwit2x could lead to yet another split in the bitcoin blockchain this November, further dividing the community’s resources, connectivity and wealth.
Unlike SegWit, segwit2x's model isn’t backwards compatible, meaning anything users had on the old network won’t work on the new one unless they conform with segwit2x. It now looks like there could be three separate bitcoin-style blockchain networks by this time next year, which isn’t necessarily a good thing.
“Who knows if the value of these chains combined will add up to something greater than bitcoin is now,” Lombrozo said. “The logistics make it practically impossible to deploy this [segwit2x] within the next few months and to make sure that everyone stays on the same chain...I don’t think it’s a workable solution.”
If segwit2x is implemented, rookie users could lose money in several ways such as sending money to the wrong address by accident, a mistake many are making now with bitcoin cash. Lombrozo thinks this road to chaos is paved with good intentions. Bitcoin wallet developer Jack Mallers described the proposed hard fork for segwit2x as “dangerous and a little reckless.” Despite a minority opposition, the original SegWit is what most developers are excited about.
What is the future of bitcoin? A widespread cryptocurrency defined by the politics of community consensus, for better or worse. Everyone on all sides of these debates generally has the same goal in mind: more network capacity so bitcoin users can spread cryptocurrency adoption and increase usage.
By definition, the bitcoin community encourages people to experiment with new ideas on their own and create distinct cryptocurrencies if there’s demand for a unique solution, the way litecoin did. Now thanks to SegWit, cryptocurrency innovators don’t have to split the network to try something new anymore. Being a bitcoin traditionalist and an avant-garde cryptocurrency developer is no longer mutually exclusive.
SegWit adds layers so people can develop all types of new protocols for updates and complex smart contracts without tampering with the foundational technology connecting the whole network. “It’s a major milestone in the bitcoin community,” Stark said. “We’ll all be drinking champagne tonight."