Today, the price of Bitcoin pushed past its previous high of $3,350 to reach $3,430 on Bitstamp and similar prices on other exchanges. This continues the upwards move which began Saturday night as Bitcoin shattered the $3,000 mark, which had long been a significant barrier.
SegWit lock-in imminent
Segregated Witness, also known as BIP 141, is expected to lock-in within the next 36 hours. A previous Bitcoin improvement proposal, known as BIP 91, was activated by the network on July 20. BIP 91 was a crucial first step toward the implementation of SegWit because it caused the network to automatically reject any blocks that are not signaling for SegWit (BIP 141) activation.
Once 95 percent of the blocks within a 2016 block difficulty adjustment period have signaled for Segregated Witness, it will be locked in. Following that lock-in, there will be another 2016 block period for everybody on the network to upgrade their software before SegWit actually activates.
Since BIP 91’s activation required all miners to signal for SegWit or find their blocks rejected, the activation of Segregated Witness has been a foregone conclusion since July 20. Nonetheless, the market seems to be reacting favorably.
Assuming the scheduled block size increase occurs this fall, Bitcoin’s civil war is almost certainly over. The lock-in and subsequent activation of SegWit will ensure an immediate increase in transaction throughput on the network. The doubling of the block size this November will result in further scaling of the network.
Segregated Witness is important for another reason. It fixes a loophole in the code that allows certain miners to secretly mine a little faster than everybody else with the so-called AsicBoost software. More importantly, it paves the way for the Lightning Network.
Thunder and lightning
Bitcoin developer Joseph Poon conceived of the idea of a “lightning network,” which would be an additional layer on top of the Bitcoin network. Bitcoin users would not be required to use it but would be able to do so if they liked. Lightning network is intended to move Bitcoin transactions off-chain, using the Bitcoin Blockchain only as a settlement layer.
If everything goes as planned, the result should be instant transactions, financial privacy and an ability to scale up to Visa’s transaction levels. The expected throughput of the lightning network is about 100,000 transactions per second.
In May of this year, Blockchain.com announced the release of a test network based on Poon’s lightning network concept. They labeled this test implementation the “Thunder Network.” Other than testing, one thing stood in the way of the network’s release on Bitcoin’s mainnet: a minor bug in the Bitcoin protocol called transaction malleability. Segregated Witness fixes the malleability problem, enabling the creation of lightning-type networks on top of the Bitcoin protocol.
Further gains expected?
When BIP 91 lock-in became imminent, Bitcoin price rose dramatically from $1,830 to $2,970 in only a few days. Questions remain over whether BIP 141 activation is already “priced in,” since BIP 91 essentially made SegWit lock-in inevitable.
However, Bitcoin having broken the critical $3,000 barrier implies renewed optimism in the marketplace. Today’s surge indicates that the markets remain optimistic about Bitcoin’s future, and the actual lock-in of SegWit could have profound positive impacts on Bitcoin price. More gains could be forthcoming.