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20 Aug 2024

The Story Behind the 2017 Bitcoin Hard Fork

The 2017 Bitcoin hard fork, which led to the creation of Bitcoin Cash (BCH), was a defining moment in the history of cryptocurrency. It was the culmination of a long-standing debate within the Bitcoin community about how to scale the network to handle an increasing number of transactions. This disagreement over the future of Bitcoin brought to light the complexities of decentralized governance and resulted in the creation of one of the most prominent Bitcoin offshoots: Bitcoin Cash. Here’s the story of how it all unfolded and the key people involved.

Background: The Scaling Debate

As Bitcoin grew in popularity, the network began to experience significant congestion. Bitcoin's original design, established by its mysterious creator Satoshi Nakamoto, limited the size of each block on the blockchain to 1 megabyte (MB). This limit was set to prevent spam and ensure that running a full node would be accessible to a wide range of users, keeping the network decentralized.
However, by 2015 and 2016, the increasing number of transactions caused delays and higher fees, leading to growing frustration among users. The Bitcoin community was divided on how to address this issue, and two main camps emerged:

Small Blockers: This group believed that keeping the 1 MB block size was essential for maintaining Bitcoin's decentralization and security. They advocated for off-chain solutions like the Lightning Network, which would allow for faster transactions without increasing the block size. The Lightning Network operates as a second-layer solution, enabling transactions to be processed off the main blockchain while still being secured by it.
Big Blockers: This faction argued that the block size should be increased to allow more transactions to be processed directly on-chain, thereby reducing congestion and lowering fees. They believed that on-chain scaling was more in line with Satoshi Nakamoto's vision of Bitcoin as a peer-to-peer electronic cash system.

The People Involved

Several key figures played crucial roles in the events leading up to the 2017 hard fork:

Gavin Andresen: A prominent early Bitcoin developer, Andresen was one of the first advocates for increasing the block size. He argued that Bitcoin needed to scale on-chain to handle growing demand and prevent users from turning to altcoins. Andresen was appointed by Satoshi Nakamoto as his successor to lead the Bitcoin project but later became a controversial figure in the community.
Roger Ver: Known as "Bitcoin Jesus" for his early and fervent promotion of Bitcoin, Ver became one of the most vocal proponents of the larger block size. He argued that Bitcoin was losing its utility as digital cash due to high fees and slow transaction times. Ver would later become one of the leading figures behind Bitcoin Cash.
Jihan Wu: Co-founder of Bitmain, one of the largest Bitcoin mining companies, Wu supported the idea of increasing the block size. His influence in the mining community was significant, and Bitmain's miners were crucial to the success of the Bitcoin Cash hard fork.
Greg Maxwell: A leading Bitcoin Core developer, Maxwell was a strong advocate for keeping the block size at 1 MB and pursuing off-chain scaling solutions like the Lightning Network. He believed that increasing the block size would lead to centralization and undermine Bitcoin's security.
Adam Back: CEO of Blockstream and an influential figure in the Bitcoin community, Back supported the small block approach and was a proponent of second-layer solutions like the Lightning Network.

The Events Leading Up to the Hard Fork

The debate over scaling Bitcoin reached a critical point in 2017. Multiple proposals were put forward to address the issue, but the community was deeply divided.
One of the key proposals was Segregated Witness (SegWit), a protocol upgrade that would increase Bitcoin's transaction capacity without raising the block size limit. SegWit was designed to remove certain data from the transaction blocks, effectively increasing the number of transactions that could fit into a single block. This proposal was supported by the small block camp but was met with resistance by those advocating for a larger block size.
In response, the big blockers proposed Bitcoin Unlimited and Bitcoin XT, alternative versions of Bitcoin that would allow for larger blocks. These proposals, however, failed to gain enough consensus.
The tipping point came with the New York Agreement in May 2017, where a group of Bitcoin companies and miners (representing about 85% of the network's hash power) reached a compromise known as SegWit2x. This plan called for the activation of SegWit, followed by a hard fork to increase the block size to 2 MB.
However, the SegWit2x proposal itself became contentious. While SegWit was successfully activated in August 2017, the proposed 2 MB block size increase was postponed. The big blockers, frustrated with the delay and the compromises, decided to take matters into their own hands.

The Hard Fork: The Birth of Bitcoin Cash

On August 1, 2017, the Bitcoin blockchain experienced a hard fork, creating Bitcoin Cash (BCH) as a separate cryptocurrency. Bitcoin Cash implemented an 8 MB block size limit, allowing for more transactions per block and aiming to fulfill the original vision of Bitcoin as a fast, low-cost peer-to-peer electronic cash system.
The fork was contentious and led to a split in the Bitcoin community. Bitcoin Cash proponents argued that their version of Bitcoin was more aligned with Satoshi Nakamoto’s original vision, while Bitcoin (BTC) supporters contended that Bitcoin Cash was undermining the security and decentralization of the network.
Despite the split, Bitcoin Cash quickly gained traction. It was listed on major exchanges, supported by major players in the industry like Roger Ver and Jihan Wu, and even attracted a portion of Bitcoin’s mining power.

The Aftermath and Legacy

The Bitcoin Cash hard fork had significant implications for the cryptocurrency space. It solidified the divide within the Bitcoin community and set a precedent for how disagreements within decentralized networks can lead to splits and the creation of new cryptocurrencies.
Since the fork, Bitcoin Cash has maintained its position as one of the top cryptocurrencies by market capitalization, though it has faced its challenges and further splits, such as the 2018 fork that created Bitcoin SV (Satoshi’s Vision).
The 2017 Bitcoin hard fork remains a critical chapter in the history of cryptocurrency, highlighting the ideological differences within the community and the challenges of governance in decentralized systems. It also underscored the importance of scalability in the evolution of blockchain technology, a debate that continues to this day as cryptocurrencies strive to achieve mass adoption.

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