The decentralized monetary system had been presented with the kinds of challenges that they weren’t prepared for.
The increase in demand for the cryptocurrency led to a massive increase in transactions, which then drove the cost of operations and the length of time it took for transaction confirmations due to the mempool always being full.
If Bitcoin was going to scale in any real sense, it needed a software upgrade to its protocol. Which is where SegWit and SegWit2x were supposed to help.
It helps here to explain a little bit about how blockchain upgrades work. Part of the issue with SegWit2x was that it required a hard fork, as opposed to vanilla SegWit, which would only require a soft fork.
A soft fork is, at its core, backwards compatible. It allows for a shift in network rules and creates blocks that will still be recognized by existing, non-upgraded software.
On the other hand, a hard fork involves taking a blockchain and splitting it into two permanently. It performs a complete overhaul of the rules that apply to the blockchain and completely redesigns it so that it will not recognize old software.
In some cases, a hard fork can split a network into two, creating different systems that allow people to choose which they wish to adopt. This was seen in the case of bitcoin and bitcoin cash.
However, a split can also be caused if enough people adopt both possible outcomes, causing disruption to networks and systems.
In 2017, users had been paying miners a lot of money to make transactions. Fees were high and users were annoyed. Bitcoin needed to scale to service more transactions.
SegWit2x was a proposal that would require a hard fork, and it was built on the back of a soft fork proposal.
At it’s heart, Segwit2x was two separate changes to Bitcoin combined into one.
First, you have Segregated Witness or ‘Segwit’ which removes the witness or ‘signature’ data from the input field of a block.
Segwit was the “small blocker” solution to scaling Bitcoin - instead of increasing the block size, you would instead use the existing block space more efficiently.
Then you had the “big blocker” solution, which is where the ‘2x’ comes from. Their solution was to simply double the size of existing blocks.
And that is where the New York Agreement came into play.
This agreement was initially formed so that the Bitcoin network would prevent splitting into two different coins.
The solution proposed by the agreement runners was to give both parties what they wanted: a doubling of the block size and an activation of Segwit.
In order to implement SegWit2x, there would have to have been a considerable change in the rules of bitcoin governance.
However, the revolutionary aim was that SegWit2x would keep all existing bitcoin users on the same singular blockchain.
In the run-up to its proposed adoption, startups and miners were the most overt supporters of the new update. Fundamentally, this was based on the frustrations people had over bitcoin adoption. Bitcoin’s slowness caused other cryptocurrencies to overtake it.
Existing upgrades had caused massive amounts of frustration as they failed to address many of the issues that bitcoin was facing - and where a remedy was made, it often wasn’t anywhere near what it could have been.
While the initial Segwit proposal failed to excite miners, SegWit2x actively incentivized on-chain transactions, allowing them to turn a profit. With the time and investment that miners spend on their equipment, it was only common sense that they hoped to see better returns on their investment.
The other huge fans of the SegWit2x proposal were larger bitcoin companies like Circle and Coinbase. While they would ultimately suspend their support, their logic was similar to that of miners and startups.
For the most part, these companies make money when there is lots of coin circulation. More transactions equals more fees for them to charge. If users don’t want to send their coins to your exchange because the transaction fees are too high, that is bad for business.
This satisfied many of the shared aims of the various stakeholders. It would allow Bitcoin to increase its transaction throughput in the short term and allow exhcanges and miners to continue to make money as usual even if it meant potentially harming what made Bitcoin great.
The opposition to SegWit2x came from node operators and developers. Part of the debate came from an inherently different understanding of what matters most about Bitcoin.
For opposers of Segwit2x, decentralization was of prime importance. Doubling the block size would make it harder to run your own node and verify your own transactions.
Fans of Segwit2x wanted on-chain Bitcoin transactions to be more like ‘coffee money’, meaning it was something you could use today to buy a cup of coffee without paying high fees.
The risk of introducing a new protocol challenged this, and with people feeling like miners and businessmen would reap the rewards, the risks outweighed any potential benefits. While SegWit2x would increase the speed of transactions, the burden would have been felt more keenly by node operators who would have to store more data.
With opposition in both ideology and the rollout of the protocol, SegWit2x led to a battle within the blockchain community. While attempts were made to create a consensus on when and how the protocol should be implemented, it was ultimately too wide a gulf to bridge.
The SegWit2x hard fork was scheduled for November 16, 2017. Yet on November 8, the proposal was suspended due to the ongoing resistance to the protocol. Companies such as Coinbase and Circle revoked their support, and ultimately the protocol failed.