Economics of a hard fork.

[nibor]

Assuming that with segwit2x we get a hard fork at end of year - and that 80% of miners mine the segwit2x chain. What will happen to the "Bitcoin Core" chain?

I think that all depends on the relative prices of the coins on each chain just after the hard fork.

Scenario 1. Chain with 20% of the miners is also 20% of the price before the split and the chain with 80% of the miners is 80% of the price before the fork.
At this point the miners on the "Bitcoin Core" chain will be in effect getting 1/4 the reward they could if they switched to mining on the other chain. And they will have to keep doing this for about 10 weeks - and they will forgo about $20m-40m in reward. At that point the difficulty would drop by the maximum factor of 4 and so would almost be back to where they were.
So seems unlikely that unless they are very principled all 20% would remain - some would switch to the 80% chain. And the more that switch the longer it would take to get to the difficulty reset.

Scenario 2. Both chains trade at same price.
In this scenario one would get same reward for mining either chain. But after about 2 and a bit weeks the 80% chain would reset difficulty down by 20% and so become more profitable. But if the other chain retained the price parity it would become most profitable after 10 weeks when its difficulty reset.


My thinking is that just after the hardfork there is going to be a lot of people trying to manipulate the relative prices of the 2 chains. And anyone with large holding of bitcoins can do this by sell one vs the other out of their holdings. And it will be the relative price that dictates if any miners mine the 20% chain or not.

edit - corrected error in cost calc was wrong by factor of 12.5!!!

[1715636013]

1715636013

[thejaytiesto]

Assuming that with segwit2x we get a hard fork at end of year - and that 80% of miners mine the segwit2x chain. What will happen to the "Bitcoin Core" chain?

I think that all depends on the relative prices of the coins on each chain just after the hard fork.

Scenario 1. Chain with 20% of the miners is also 20% of the price before the split and the chain with 80% of the miners is 80% of the price before the fork.
At this point the miners on the "Bitcoin Core" chain will be in effect getting 1/4 the reward they could if they switched to mining on the other chain. And they will have to keep doing this for about 10 weeks - and they will forgo about $2m in reward. At that point the difficulty would drop by the maximum factor of 4 and so would almost be back to where they were.
So seems unlikely that unless they are very principled all 20% would remain - some would switch to the 80% chain. And the more that switch the longer it would take to get to the difficulty reset.

Scenario 2. Both chains trade at same price.
In this scenario one would get same reward for mining either chain. But after about 2 and a bit weeks the 80% chain would reset difficulty down by 20% and so become more profitable. But if the other chain retained the price parity it would become most profitable after 10 weeks when its difficulty reset.


My thinking is that just after the hardfork there is going to be a lot of people trying to manipulate the relative prices of the 2 chains. And anyone with large holding of bitcoins can do this by sell one vs the other out of their holdings. And it will be the relative price that dictates if any miners mine the 20% chain or not.

The last paragraph is pretty much it. There will be whales trying to crush the enemy chain by dumping their bitcoins... whoever is the bigger whale that manages to cause the biggest damage on the price will win.

So from what i've read, we should be safe in the legacy chain, in case JarzikCoin is forked in october-november, it will get destroyed by legacy chain whales, because we got the biggest whales ready to kick forker ass.

[nibor]

So from what i've read, we should be safe in the legacy chain, in case JarzikCoin is forked in october-november, it will get destroyed by legacy chain whales, because we got the biggest whales ready to kick forker ass.

You really think that people will be selling "Segwit2xcoin" and buying "BitcoinCoreCoin" ? Even when there is 85% miner support for "Segwit2Xcoin" and UASF seemed to be popular with users? I.e. your prediction is that "BitcoinCoreCoin" will be worth more than "Segwit2xcoin" when they start trading?

That would be interesting - say there was any premium then 85% of the miners would be losing money by mining Segwit2xcoin - and $25k a block even a small percentage premium on BitcoinCoreCoin could lead many to switch back to BitcoinCoreCoin.

The thing is that for Bitcoin investors you can just sit and wait - you do not really care which coin comes out on top - or if they both go well. Just so long as the sum of the 2 remains as before.

But for miners they have to decide - they can only mine one coin. And since both will have the same difficulty for 2016 blocks that decision will be based on price and their own interpretation of the best thing to do.

What you have to remember is that BitcoinCore can release a patch that allows 2meg blocks just after the hardfork and in effect take back control of the release process - obviously would have to be able to swallow their pride to do that! As people can then just install that and will be on the Segwit2x chain.

[RoommateAgreement]

i may be wrong about this but in my experience all miners don't start signalling specially when they are smaller. this has many different reasons. some of them don't even know what to choose (not knowledgable) but mostly it is because they are small and are afraid of getting attacked from the opposite supporters. something like what happened to F2pool when they started signalling SegWit.
which is why i believe if a chain happens to gain a large support like 80% then it will gain 100% support as soon as things become serious.

so your scenarios will only be true if the percentages were much lower like 40% to 60%

[nibor]

which is why i believe if a chain happens to gain a large support like 80% then it will gain 100% support as soon as things become serious.

so your scenarios will only be true if the percentages were much lower like 40% to 60%

Segwit2x will only activate at 80%.

Does anyone know if a scenario can occur where miners signal for Segwit2x, Segwit locks in but then some stop signalling the 2meg blocksize increase? i.e. roll back to BitcoinCore.

This seems the biggest risk - if we fork with 80%+ miners on one chain that seems safe - but if as you say it is 60% then going to be issues and both chains will probably survive.

[achow101]

Segwit2x will only activate at 80%.

Does anyone know if a scenario can occur where miners signal for Segwit2x, Segwit locks in but then some stop signalling the 2meg blocksize increase? i.e. roll back to BitcoinCore.

This seems the biggest risk - if we fork with 80%+ miners on one chain that seems safe - but if as you say it is 60% then going to be issues and both chains will probably survive.

That is not possible. The hardfork for segwit2x will happen a fix number of blocks after segwit activates. So there is no signalling, but miners who signalled for segwit2x can change their software back to Core after segwit activates.