The Blockchain Split Scenario: Staying Informed and Backing Up Bitcoin Keys
In less than four weeks the Bitcoin network has many events on the horizon, and numerous things could happen during the weeks following.
Also read: A Look at the Bitcoin Apps Being Built Using the Lightning Network
The Fear of a Chain Split
Right now over the course of the next 3-4 months, there are many plans for the Bitcoin network. Often times at Bitcoin.com we have discussed this matter in great detail, but people still wonder what will happen to their bitcoin holdings if the blockchain splits. Several potential outcomes can happen with these particular three ideas; The user activated soft fork (UASF) that begins on August 1, Segwit2x which starts around mid-July to October, and the more recent Bitcoin ABC (UAHF) that might deploy in August.
There’s a number of things that could happen with any one of these plans, but the biggest fear is the possibility of a chain split. A chain split is when the blockchain fractures into two chains due to the fact that consensus was not met during an upgrade. That means a particular portion of the Bitcoin network participants disagreed on the plan and chose to ignore the other side’s rules or protocol upgrade. This happened with the Ethereum network, and now there is another blockchain called Ethereum Classic. Now, just because the Bitcoin blockchain splits it doesn’t mean the smaller chain will survive. But the first and foremost thing every bitcoin holder should know if they both survive; If you hold your private keys during a chain split you will be able to retrieve tokens for both chains.
During a Chain Split, Significant Price Fluctuations and Confusion is Probable
That doesn’t mean you will double your money as one token will be worth considerably less than the chain with the most proof-of-work and possibly even be worthless. The chance of a smaller chain surviving with the current network difficulty for miners would be a tough thing to accomplish, and the chain would need a decent amount of support to survive. The new chain or the legacy chain does have a chance to grow longer than the other, and each chain will have a certain amount of hashrate. If there is a chain split the likeliness of significant price fluctuations and confusion is very probable.
The best way to ensure your funds will be safe during a chain split is making sure you possess your private keys, backups, and make sure your seed and encryption phrases are secure. If you have possession of your keys, you don’t have to do anything but be patient and watch everything unfold.
Stating the Obvious: Bitcoins Held on a Trading Platform Leaves You at the Mercy of the Exchange
If you keep your money on an exchange or with a third party that possesses your bitcoin keys you will have to deal with the decisions they decide to make during and after a chain split. People often ask this when learning about the possibility of a chain split and it should be fairly obvious you must surrender to their control. There may be lots of confusion and exchanges may halt trading. Trading platforms may also disable deposits and withdrawals during these times as well. Some of the largest bitcoin exchanges or brokerage services could go offline, and you may not have access to your bitcoins. The point is; if they hold your funds you will have to abide by their rules, guidelines and possible unfavorable outcomes.
Take Some Time to Secure Your Keys and Backups
During the next few weeks, people will have time to make sure their backups and seeds are in order and they can also move their funds off exchanges. However, the choice is entirely up to the user, and there will likely be many individuals who leave their bitcoins with third parties. Split or no split, giving the custodial rights to your bitcoins will always leave you at the mercy of that particular business or operation. Furthermore, there is also a chance that the bitcoin community participants do come to consensus and there is no chain split whatsoever. However just to be on the safe side, there are a few steps below detailing what people can do to make sure they hold their private keys and everything is backed up and safe for the next few months. Alongside this, there are also a few articles that go over chain splits, the upcoming scaling plans, cold storage solutions and more so you can further your knowledge about these subjects.
Private Key Safe-Keeping
- Backup your wallet, associated files, and your wallet’s encryption phrase.
- Make sure your wallet software or firmware is up to date.
- Make sure your passwords and seeds or mnemonic phrases are available and written down.
- Move your bitcoin holdings off an exchange to a wallet you control and follow steps 1-3.
- Scheduled Scaling Updates for the Bitcoin Network Are Getting Closer
- A ‘Segwit2x Working Group’ Has Submitted a Bitcoin Scaling Plan
- Segwit2x Beta Released and New UAHF Code Proposal `ABC´ Removes 1MB-Limit
- Bitmain Announces Hard Fork Protection Plan Against UASF
- New Scaling Attempt UASF and Mining Alternative Bcoin Might Change The Game Altogether
- This Happens to Your Coins During a Bitcoin Hard Fork and Possible Blockchain Split
- Bitcoin Could Face Ethereum-Style Split
- The Idiot-Proof Vault: A Simple Cold Storage Guide
- How to Restore a Hardware Wallet Using a Seed Phrase
- Not Your Keys? Then It’s Not Your Money in Bitcoin-Land
Have you secured your bitcoin private keys and necessary backups? What outcome do you see happening over the next three months? Do you think consensus will occur? Let us know in the comments below.
Images via Pixabay, and Bitcoin.com.
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