SegWit activates on BTC in just over 36 hours, but what should we expect to happen?
Many have written about the technical and political details of SegWit being implemented for BTC and I'm not going to go over too much old ground here. I want to have a look at what the effect of SegWit activation might be on the blockchain performance and how the markets might respond to any changes.
One of the much vaunted benefits of SegWit is that it frees up some space in the blocks for more transactions to be included. It's not a lot of space, but it is not negligible either. With the Bitcoin scaling debate having raged for a long time now I'd expect the market to be watching closely to see whether SegWit really makes much difference. But how would we know? Well I'm glad you asked....
The first thing I'll be looking at is the mempool size, which shows the aggregate size of transactions waiting to be confirmed on the blockchain. You can see from the graph below that in the last 12 months the mempool size has exploded at various points, even more so than the price of Bitcoin itself. We see the big spike in late May and again it is on the rise during August where we are post-Fork but pre-SegWit activation.
Graph courtesy of https://blockchain.info/charts
I would expect that after SegWit goes active the Mempool size should start to come back to a more reasonable level. Ideally below 20,000 and if it can do that after a few weeks (it may take some time for the extra block space to chip away at this transaction backlog) then this would be the first really positive indicator and the market should respond positively to this development.
If the mempool starts to drop down the next thing I'd expect to see would be the cost of transactions coming down also. With less competition for transactions to get confirmed in the limited block space of pre-SegWit Bitcoin the users should be able to get more transactions confirmed with less fees. If you have a look at the chart below you can see the miners revenue per transaction has been steadily increasing since about May 2017.
Graph courtesy of https://blockchain.info/charts
If the mempool starts dropping and the price and volume of Bitcoin stay at roughly the current level, then I'd expect to see the transaction costs start to come down too. Of course, this development would also be well received by the market and we could expect to see a strong bid for BTC if transaction costs come down, so this is another graph worth keeping an eye on over the coming month(s).
Now when you put all this in context with what's been going on with Bitcoin Cash (BCH) recently it is all related. On August 17, BCH survived a flood attack when it mined some large 4MB and 8MB blocks to clear over 80,000 transactions in just 4 blocks. This was impressive as it proved to the market that it was a good scalable solution that could handle a lot more transactional load than it currently faces and the market responded with a buying spree that sent BCH up from $300 USD to a high of $996 USD according to CoinMarketCap - a rise of over 220% in less than 48 hours.
Graph courtesy of https://coinmarketcap.com/currencies/bitcoin-cash
BCH has since cooled off a bit, but I'd expect it's price to be closely related to the SegWit activation on BTC also. If the mempool and transaction costs of BTC don't start dropping within the first couple of weeks post-SegWit then we should see a fresh bid for BCH as a potentially more viable solution to handle future demand, but if we do see mempool and transaction costs start to drop (as I am predicting) then BCH may continue to sell off as BTC re-exerts its dominance as the premier Bitcoin solution - at least for now....
All up I'd expect these fundamental price drivers to play out over the next month and as we get closer to the likely SegWit2x hard fork I'm sure things will change, but for the short term I am bullish on BTC and bearish on BCH.
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You seem like a level headed person in the crypto-space. Really enjoyed the article, and I'll definitely be looking forward to lower fees! lol.
I feel like BCH is a short term fix, and is vulnerable. Thinking about writing on article on that too. Anyways, followed and upvoted!
I actually like BCH in the longer run because I'm not really convinced about Lightning Network and I think the small blocks wont be able to handle the future demand. Followed you back and I look forward to reading your article. Thanks for the upvote and the randowhale too!
https://www.youtube.com/watch?time_continue=2941&v=iFJ2MZ3KciQ
Check out this video, some good points made here about BCH. I'll be referencing this in my article probably lol
Interesting video though I am a bit wary of some vested interests there. eg, the guy with the UASF hat on is clearly a Bitcoin Core fan and others were spewing some very anti-miner rhetoric. I'm not a Bitcoin absolutionist so I'm not looking for the silver bullet and I'd like to see many different blockchains together adding up to compete with VISA in the long run, but for now it's just about staying ahead of the demand curve. Let competing innovation thrive as the space evolves and let the market decide :)
I have no doubt Bitcoin will become obsolete. I've always considered it to end up being the new gold standard. Just a store of wealth. The value of Bitcoin is only going to rise. I do like the competition though!
I agree with your assessment. Good post.
You may appreciate my post entitled "SegWit is a Trojan Horse".
That's a really good article and I agree with a lot of it. Here I was just trying to quantify the short term effects (and sentiment) we might see from segwit activation while staying out of the political/technical arguments for/against it. But I'm aware there are some big issues!
I have to remind myself that the market doesn't always care about these kind of fundamentals, and even when it does, it's always late to the party. Your analysis is probably more immediately contemporary.
PS - Followed you btw, solid comments.
So true. Markets can have a very short term view as participants chase the quick buck. Lot of that going on in the crypto space at the moment and a LOT of totally uninformed speculators who think they can just read a chart and ignore the driving fundamentals (it does my head in!).
Segwit will be GREAT.....until it isn't. Whether it's the miners conspiring to make an unverified transaction, failure of the Lightning Network or failure to scale properly, the realisation will come at some point and that realisation may even be the sort of black swan to cause a Mt Gox type market event.
But, lets hope for the best and plan for the worst. There is no perfect solution so the game is more about lesser evils and identifying and mitigating their risks than anything else.
You said it. I didn't used to feel uncomfortable holding Bitcoin as the denominator for all my trades, but I'm diversifying more these days.
Nice info buggedout.
What would be really interesting for comparison is a sustained spam attack similar to the one suffered by BCH recently and how the post SegWit BTC network or even the future 2x (if it actually happens) would respond in such a case.
I personally don't think it would have the same success in overcoming such an attack as BCH though if it were to occur and we would see a similar flood of funds back into BCH again as it would show that BCH is the more viable option for scaling.
Thanks for such a concise article
Thanks southerncross. Yes, I agree there is a chance that BTC could be attacked with a similar flood and I doubt it would hold up as well as BCH did.
Hi @buggedout! First of all, love your username! And you're part made some points that were well delivered. I'm so new with crypto so I'm always happy to find thoughtfully written content like this.
Thanks for the kind words. I've been into cryptos for a bit but am new to steemit. Hopefully this will turn out to be a good medium for me to express my thoughts, so if you're interested then stay tuned :)
It will be interesting to see what happens.. the theory of BCH is good but of course vulnerability is an issue... I am prob leaning a bit more towards BCH.. but I'm a bit of a wus and I've hedged my bets both ways.... lol. Overall I'm not unconvinced that the ETH platform won't win out in the long term... yep..I've hedged on ETH based coins as well :) I'm getting more risk adverse as I get older hehe
Nothing wrong with being risk adverse. I do think BCH will have it's chance to shine if BTC starts to struggle with transaction load but we'll probably also have SegWit2x coin fork coming soon so maybe that'll be the one to win out in the long run over both BTC and BCH. I was keen on ETH too until I learned about EOS. Again it will come down to which coin can scale better.
Yeah the only certain thing is that everything changes quickly.. who knows what will be around this time next year... but if BTC keeps fragmenting it doesn't really bode well for them long term. But there is big emotional connection for many people to BTC, being the original coin which may keep it going past its use-by date :) Yes EOS is on my list too.. just have not got there yet... too many to sift through :)
There sure is a lot to learn.
“The more I learn, the more I realize how much I don't know.” - Albert Einstein
I've never found that quote more poignant than since I started studying cryptos....
Interesting view.... I will be waiting to see the outcome. Welcome to the community too. Love your work so far and will be following and reading.
Thanks. Only about 18 hours to go. Not expecting big impact straight away but by this time next week the impact should be visible on the charts.
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Whatever the case may keep us informed. Well written article, and full of information. As I am still a bit of a noob on Steemit. I am still learning and this kind of posts help me get a grasp on crypto currency world. :)
#theunmentionables
Thanks for the positive feedback. I might do a follow up in about a week or so and look at how the blockchain is performing. We're all pretty new to this new crypto stuff so everyone is still learning, even the experts!
(Disclaimer - I am not an expert :p)
There is always something new to learn if you are looking to learn. hehe :)
Looking forward to the follow up :)
Good stuff, I like your assessments so followed for updates. whisper EOS news /whisper
Thanks. I wish I knew more about EOS, but it's definitely on my radar ;)
Bug, any idea what the BTC transaction fees are for 1 USD transaction? BTC started pissing me off last year when fees started to become unbareable. Since being doing a lot with DASH and mined it right up to a few months ago. Know anyone going for an Antminer D3?
BTC transaction fees will be the same regardless of how much you're transferring. I think I've been paying about $4 but you can try less if you don't mind waiting for confirmation.
I like DASH. Why did you stop mining it? It's a great time to be mining DASH right now with the price run it's going on.
Mining Monero currently. Uses very little power at far higher rewards. DASH difficulty only gives me 50% of the rewards of mining anything else. DASH price will be over USD 1 000,-- by end of year regarding my estimation.
Fair enough. Monero has been going on a pretty good run of its own!
Awesome stuff! I have followed you, please follow me back!
Sure. Don't forget to upvote my post though. Need all the help I can get :)
Done mate
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