This is a re-write of A Bitcoin Beginner’s Guide to Surviving a Coin-Split, specifically addressing issues associated with the upcoming BIP 148 UASF. (Update: And the BCC launch.)
July 26th update: With BIP91 activated, it seems increasingly unlikely there will be a Bitcoin 148/Legacy Bitcoin split at all. And while August 1st will see the launch of a new coin, Bitcoin Cash (BCC), this coin should include strong replay protection. All you need to do to be able to access your BCC is control your bitcoin (BTC) private keys on this day. This article includes information on how to.
There is a chance Bitcoin will experience a chain-split on August 1st. A segment of all Bitcoin users plans to activate a user activated soft fork (UASF) as described in Bitcoin Improvement Proposal 148 (BIP 148). Specifically, their nodes will reject any Bitcoin blocks that do not signal support for Segregated Witness (SegWit), the centerpiece of Bitcoin Core’s scaling roadmap.
If a majority of miners (by hash power) does not signal support for SegWit through BIP148 on August 1st, but at least some do, Bitcoin’s blockchain will split in two. In that case, there would be two types of Bitcoin tokens, which we’ll refer to in this article as “148 BTC” for coins on the soft forked chain, and “Legacy BTC” for coins on the chain that did not activate the soft fork.
Update: There are now some alternative scenarios to keep the chain as one, mainly through alternative activation methods. But for simplicity’s sake, this article will assume that these methods fail. More information on these alternative scenarios can be found here.
Update: There is now also more than one way in which Bitcoin can “split”. Or more precisely, August 1st will see the launch of a new coin, “Bitcoin Cash (BCC)” or “Bitcoin ABC (ABC)”, that gives all current bitcoin (BTC) holders the equivalent of their holdings in these new coins. This was unknown at the time of publication of this article, and is therefore not covered extensively. Many of the same security precautions apply, however, so if you follow this guide, all your coins (including BCC/ABC coins) should be safe. For more information, see this article.
The “good” news is that each bitcoin would effectively be copied to both chains. If you hold bitcoin right now, you will hold both 148 BTC and Legacy BTC after the split.
The bad news is that this coin-split can be messy and risky. And if you’re not careful, you could lose funds.
This guide will provide you with the basics to keeping your funds safe during the UASF and will help to make sure you make it to the “other side” with all your coins intact.
Author’s note: If you want to play the 148 BTC/Legacy BTC markets as soon as possible and you are fine with taking risks, and/or you really know what you are doing, this article is probably not for you: It’s a beginner’s guide.
Before August 1
First off, be aware that a chain-split can create a high-risk situation. There is a chance that some sort of cyber-battle will break out between the two camps, perhaps even escalating to the point where bitcoin’s exchange rate(s) drops sharply, possibly to zero. Make absolutely sure you are not holding more value in bitcoin than what you are willing to lose.
If you do decide to hold onto your bitcoins, the single most important piece of advice is this: Ensure that you control your own private keys.
If you are storing your bitcoins on an exchange, in a custodial wallet like Coinbase, Circle or Xapo, or on any other service that holds your private keys for you, you may or may not eventually receive coins on both ends of the chain. In fact, if these kinds of services aren’t well-prepared, there could be scenarios where you don’t get any coins at all. So far, very few exchanges have given any kind of guarantee.
So if you’re using any of these kinds of services to store your bitcoins, you need to create your own wallet. Send your bitcoins to one or several Bitcoin addresses in this new wallet. This wallet now holds your private keys.
What kind of wallet you use is up to you. That said, here are some basic solutions:
The only wallets that are entirely trustless are full node wallets, like Bitcoin Core or Bitcoin Knots. These verify all protocol rules, but they can be a bit resource intensive to use. If you don’t care about transacting with bitcoin (either 148 BTC or Legacy BTC) anytime soon and really just want to keep both as a long-term investment, printing your private keys on a paper wallet is another option. This option, however, is only really secure if you follow strict security precautions, which you can find here. Alternatively, you could get yourself a hardware wallet. Any of the hardware wallets listed on bitcoin.org will keep your private keys secure.
Most regular desktop or mobile wallets, as listed on bitcoin.org, are about as secure as your computer or phone is. Since most computers and phones are not all that secure, these are not ideal for large amounts. With that in mind, all mobile wallets and desktop wallets listed on bitcoin.org will store your private keys for you.
In any case: Be sure to make backups of your keys! Most wallets require you to do this when installing: don’t skip this step.
On, and Perhaps (shortly) After, August 1
If a majority of hash power signals support for Segregated Witness through BIP148 on or before August 1st (or BIP141 or BIP91 before August 1st), the protocol upgrade should activate smoothly. In that case, you’re fine, even if you didn’t prepare at all.
Update: Even in the case of a smooth upgrade, it looks like Bitcoin Cash will still emerge. All it requires is some hash power and/or value dedicated to this chain.
But it’s also possible that a majority of hash power will not go along with the BIP 148 UASF on August 1st, in which case the chain could split. If you hold your private keys, you will then have both 148 BTC and Legacy BTC.
Such a chain-split could resolve in several ways.
If at any point on or after August 1st, the 148 BTC chain becomes the chain with most accumulated proof of work, both BIP 148 nodes as well as Legacy nodes would switch to the 148 BTC chain. As such, the Legacy BTC chain should be discarded, resolving the situation. It would have been a temporary split, and you should be fine if you held onto your private keys. You can now continue to use bitcoin as usual.
Update: This is not true for BCC. BCC will continue to exist for as long as there is any hash power and/or value dedicated to this chain.
But unless and until this happens (or other types of precautions are taken), there is always at least a theoretical risk that the Legacy BTC chain can be overtaken and be discarded like this. That chance should decrease as time goes on, but will realistically exist for days, and maybe even longer — even if no blocks are found on the 148 BTC chain.
As such, buying or accepting Legacy BTC after the split — and especially shortly after the split — is very risky. These bitcoins can quite literally disappear if the 148 BTC chain overtakes the Legacy BTC chain. Therefore, it’s not recommended that you buy or accept any Legacy BTC — if you do, at least be aware of and comfortable with the risk that your money could cease to exist.
Update: Buying or accepting BTC is not a problem if the only “split” is with the BCC chain.
BIP 148 nodes will never acknowledge the Legacy chain, so these will not switch regardless of which chain has more hash power. However, it is very risky to buy, accept or hold 148 BTC, too. Most importantly, there is no guarantee that 148 BTC will continue to be used. While that is of course true for any cryptocurrency, due to slow mining difficulty adjustments, a potentially hostile environment, and the continued possibility for SegWit to activate on the Legacy chain after all, it’s probably more true for 148 BTC. Additionally, block confirmations may be very slow for quite a while, which could make using 148 BTC for transacting impractical.
Update: If you want to accept BCC, you’ll need a dedicated BCC wallet.
On top of the Legacy BTC chain being discarded or the 148 BTC chain withering away, there is another big risk: replay attacks.
In case of a chain-split, transactions on both sides of the fork will look identical. If a transaction is picked up by both 148 BTC and Legacy BTC nodes — for example, because the receiver of a transaction retransmits that transaction — the transaction may be valid on both chains. This is called a “replay attack.”
As such, spending coins on one end of the chain could make you accidentally spend the equivalent coin on the other side of the chain. Instead of paying someone only in 148 BTC, you may unintentionally send Legacy BTC as well, or vice versa. 148 BTC and Legacy BTC are initially “stuck together.”
The best way to prevent replay attacks is simple: Do not send any transactions. At least not until it is clearer to everyone what the post-fork situation looks like. It’s also best not to send any transactions the last day or two before August 1st, just in case they don’t confirm in time.
Update: The replay risk is more complex for BCC. If you want to be on the safe side, it’s still best to not send any transactions, at least for as long as BCC has any meaningful value to you.
After the Chain-Split
In case of the BIP 148 UASF, it is a bit hard to say what “after the chain-split” actually means.
If the 148 BTC chain gets more accumulated proof of work, it should be the only chain to survive, and the split would be over. All 148 BTC would then simply be bitcoins (BTC) again.
But if that doesn’t happen fast, and even if the 148 BTC chain appears non-active, a chain-split could, at the very least, linger for a while. Miners could start mining on that chain at any time. As such, the 148 BTC chain can in theory always wipe out the Legacy BTC chain.
And there are also possible scenarios where the two chains — 148 BTC and Legacy BTC — coexist. What’s more, even a scenario where more than two chains emerge can’t be taken out of the equation. In these scenarios, you will have coins on both (or all) sides of the fork.
But as mentioned, it will be tricky to spend coins on one chain without accidentally spending the equivalent on the other(s). And the bad news is that splitting these coins can be a bit complex. (It will typically require freshly mined or double-spent coins.)
The good news, however, is that some exchanges will likely set up coin-splitting services and take care of most of the complexity behind the screens. You’d just need to send your bitcoins to an exchange, and the exchange will credit your account with 148 BTC and Legacy BTC. (They should even replay the transaction for you to make sure they indeed receive both your coins.) At that point, if you want, you will be able to sell or trade your coins.
If the split persists, there should be wallets for both (or all) coins soon enough. Of course, you may need to upgrade your existing wallet or download a new wallet if and when this happens. This outcome also remains to be seen. Do not accept any transactions on your wallet before this is clear. Note that the situation could remain uncertain for weeks!
Further specifics on what to do after a coin-split will be announced on Bitcoin Magazine (and most likely on bitcoin.org and other sources of information) if and when a coin-split occurs and we have a better understanding of the post-fork situation.
Update: Most of this holds up for BCC, except that it’s very clear what “after the chain-split” means: it’s August 1st and onwards.
So, to Recap …
1. Control your private keys well before August 1st.
2. To be on the safe side, avoid any transactions a day or two before, on, and shortly after August 1st. (How “shortly after” depends on what happens; it could take weeks.)
3. If there are still two (or more) chains when the dust settles, split your coins into different wallets.
This article will be updated as news develops.
Aaron van Wirdum is interested in technology and how it affects social and political structures. He has been covering Bitcoin since 2013, focusing on privacy, scalability and more. Hodls BTC.