Segwit2x Game Theory Scenarios Part 1

The Segwit2x hard fork is coming in less than two weeks and many are wondering about what may happen. In this article, I’m going to go through a few of the scenarios. Big caveat is that I don’t expect any of these scenarios to come to pass. We are examining first-order scenarios in order to examine more complicated scenarios in a later article.

Current Situation

The current situation is the culmination of a lot of events that have come before which include the following:

  • February 2017 — Shaolinfry proposes UASF
  • March 2017 — UASF becomes BIP148
  • May 2017 — NYA is signed
  • July 22, 2017 — BIP91 goes into effect
  • August 24 — Segwit activates

Scenario 1: 2x is abandoned

The easiest scenario to analyze is where the New York Agreement signers decide collectively to not fork at all. In this scenario, all the miners, merchants, wallets and services that entered into the agreement collectively decide to reverse course and not run the 2x software at block 494784.

Scenario 2: Core capitulation

In this scenario, we assume that a lot of Core devs have a change of heart and start recommending upgrading to 2x last minute. Even in such a low-probability scenario, there will be nodes that don’t upgrade to 2x. Such nodes will stall out at block 494783 and will wait for someone to mine the next block.

Scenario 3: 2x miners honest, no attack

In this scenario, miners stick to the New York Agreement, possibly mine at a loss and create a giant asymmetry in hashing power in favor of 2x.

  • November 24, 2017 — Block 495936 is mined on 2X. 1X continues to have 100 minute blocks, 2X now has 10 minute blocks. 2X is now 9% easier to mine than 1X.
  • February 3, 2018 — Block 495936 is mined on 1X. Difficulty retargets downward by a factor of 4. 1X has 25 minute blocks, 2X continues to have 10 minute blocks. 1X is 3.6 times easier to mine than 2X.
  • March 10, 2018 — Block 497952 is mined on 1X. Difficulty retargets downward by a factor of 2.5. 1X has finally adjusted enough to mine 10 minute blocks, 2X continues to have 10 minute blocks. 1X is 9 times easier to mine than 2X.
  1. Hash Power follows Price — Hash power moves from B2X to B1X (Something like 75% of total hash power moves from B2X to B1X)
  2. Massive Dollar Injection — B2X is bought with outside money and causes it to go up (around 36x), B1X is short sold with outside money and causes it to go down (around 1/36 of before) or some combination thereof.
  3. Massive Hash Power Injection — New hash power is brought into B1X.

Conclusion

A static, first order estimation of the current situation suggests that the current futures market price and current mining split is not stable economically. The people on different sides of the debate essentially stand on different sides of what will correct.

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