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Bitcoin’s Brexit Moment Happening Now (Full Explanation)

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Hi everyone,

You may have heard about the bitcoin scaling issue that is currently playing out so I would like to offer the following as a simple yet comprehensive explanation of what is about to happen.

U.K.’s Brexit referendum on June 23rd, 2016 caused the British Pound to lose 10% of its value in a single night, which is a massive move for a regular currency. For cryptocurrencies, a move of 10% in a day has become a regular occurrence, so the price effects could be far more significant here.

Hope you enjoy and appreciate any questions, comments, and feedback.

@MatiGreenspan
eToro, Senior Market Analyst

Please note: All data, figures, and graphs are valid as of July 19th. All trading carries risk. Only risk capital you’re prepared to lose.

The History

It’s great to see that the bitcoin network is growing rapidly. However, the rate of growth has become quite alarming lately as the network was not initially setup to handle this much traffic.

At the moment, each block in the bitcoin blockchain contains 1 Megabyte of data, which can hold approximately 1,000 to 2,000 transactions. Usually, it takes about 10 minutes to mine a block. So if there are more than a few thousand transactions in a short time it results in the network getting clogged and people can wait a long time for their transactions to be processed. Sometimes even a few days.

True, bitcoin is a decentralized currency so we don’t have any government or central bank deciding on monetary policy, but it’s clear here that the community needs to make a decision to improve the protocol.

Bitcoin is controlled by the miners. People who run the bitcoin software and confirm transactions. There are many different types of software that are used around the world. In the old days, you could mine bitcoins with a laptop. These days it requires a lot more computer power. So miners have begun to form groups called mining pools. They all link their computers together and when they mine a block, they divide the rewards among themselves.

There are about twenty major mining pools at the moment. These are the guys who are currently arguing about the best way to improve bitcoin.

The Possibilities

So far there have been about 200 different proposals to improve bitcoin. Seeing that things were not moving, one of the proposals BIP148 put a hard deadline on this issue of August 1st. Less than two weeks from the time of this writing.

The goal of BIP148 is to force other miners to upgrade to the SegWit protocol. Without getting too technical, SegWit is a way of improving the bitcoin protocol in a way that each block can hold more transactions.

The idea is that anybody who does not upgrade their software to allow the implementation of SegWit will be rejected, causing a split (hard fork) in the network.

Wait… what’s a fork??

A hard fork is a major split that causes two different currencies to be created. This is what happened with Ethereum and Ethereum Classic about a year ago. Ether classic was the original form and Ethereum that we know today was the secondary currency that was created.

A soft fork is a simple change in protocol that does not split the network. For example, if everybody upgrades their software to BIP148 then it will upgrade the protocol to SegWit without causing a split. Of course, that’s a big IF.

However, some people were not happy with this solution. They quickly put together another proposal that would take effect before the August 1st deadline called SegWit2x.

The software that allows for SegWit2x should be available this Friday, July 21st and if it is adopted it will implement SegWit as a first step in the solution. Then, over the next six months will actually increase the block size from 1 MB to 2 MBs per block.

The setback is that this type of change to the bitcoin blocks would require the creation of a new currency. Yes, another possible hard fork.

For your convenience, we’ve put together a flow chart so that you can visualize the different possible paths that bitcoin faces at this time.

This image can also be found online at: http://imgur.com/a/0nWwn

Special thanks to everyone who helped put together this diagram. Our creative director Elior Abecsis, Moriah Waterland who is a leader in our efforts to put eToro on the blockchain, and Zach Chester our brand new Cryptocurrency Analyst.

Hoping that everything goes smoothly and wishing you a very pleasant day ahead.

This content is provided for information and educational purposes only and should not be considered to be a investment advice or recommendation.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

Featured image from Shutterstock. Story image from eToro.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 122 rated postsSenior Market Analyst at Etoro.com.




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5 Comments

5 Comments

  1. knightofone

    July 19, 2017 at 11:56 am

    The segwit2x client is already avaimable, and miners started signaling ahead of schedule

  2. embersburnbrightly

    July 19, 2017 at 4:59 pm

    Nice explanation and diagram; thanks!

  3. Mati Greenspan

    July 19, 2017 at 5:01 pm

    Thanks embers. 🙂

  4. Nachshol

    July 19, 2017 at 8:28 pm

    So…. What we, as crypto investors, should expect towards this occurrence?
    Is it possible to assume that the newer coin would be “better” then the old (like ETH and ETH classic)?

  5. Mati Greenspan

    July 21, 2017 at 10:12 am

    Great question. It’s still not clear. A segwit2x coin with larger blocks would very likely be better than the current version. However, getting to that point is quite dangerous.

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Altcoins

Crypto Market Cap Falls Below $200 for the First Time Since November Amid ICO Backlash

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Cryptocurrencies extended their selloff overnight Tuesday, as the total market capitalization pierced below $200 billion for the first time since November. The decline was far-reaching and severe, with 78 of the top 80 altcoins recording double-digit percentage losses.

Crypto Market Update

Roughly $26 billion was wiped from the cryptocurrency market overnight, a sign that the bears were firmly in control and not giving up their position anytime soon. The market bottomed at $189.6 billion late Monday and has since recovered to around $193 billion. Twenty-four hours ago, coins were collectively worth more than $217 billion.

Below are two snapshots of the crypto top-50, as reported by CoinMarketCap.

Although the declines were largely concentrated in altcoins, bitcoin also experienced a tumultuous overnight session, with prices coming within $100 of a new yearly low. The bitcoin price bottomed at $5,858.60 on Bitfinex but has since recovered above $6,100.

Ethereum’s downward spiral intensified Tuesday, with prices crashing to fresh 14-month lows. At press time, ether was down 16.6% at $267. The second-largest cryptocurrency by market cap has shed more than 35% over the past seven days.

The Market’s Next Move

The rout in altcoins has left bitcoin with a 54.1% share of the total cryptocurrency market – the highest since December. Although this gives bitcoin a stronger gravitational pull on other digital assets, it’s also an indicator that investors are shifting their portfolios away from more speculative altcoins and tokens.

As Bloomberg pointed out on Monday, Ethereum’s massive decline could be a sign that ICOs are cashing out. If this is true, ether could face a deeper short-term correction as token offerings fizzle out.

Biswa Das, the head of quantitative hedge fund BloomWater Capital, said the following of ICOs:

“These startups are raising a lot of funds but they don’t have treasury management or enough cash management experience, so they’re selling too early and causing a lot of pressure in the market. It was fine last year but right now the market is so fragile that it causes a lot of pressure.”

The cryptocurrency market has lost a staggering $140 billion since June 1, and a look at bitcoin’s technical chart suggests more pain could be on the way. The bitcoin price faces a critical support test at $5,800; a break below that level could expose the digital currency, and the broader market, to new yearly lows as early as this week.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 546 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Bitcoin

Bitcoin Price Stabilizes Above $6,000 as Altcoins Get Rearranged

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Bitcoin has emerged as the victor from the bloody chaos of the past week, but perhaps only by default. The 5% losses incurred by BTC in the past seven days would be considered a poor week at the markets in a different climate; but within the current context BTC looks positively bullish in comparison to its nearest competitors.

Bitcoin Stabilizes Above $6,000

Bitcoin’s fall over the last 24 hours didn’t come quite so fast or as hard as that of the altcoins, although it did eventually drop below $6,000 at one point during the night. At around 03:00 UTC the BTC coin price sunk to the $5,970 range, but by the time people were waking up for breakfast the $5,000’s had been rejected and BTC was back up above $6,000.

With just under 18% of BTC trades coming against USDT Tether, it seems the price dip was more a case of cautious hands taking refuge in USDT for the night while the storm cleared. After a 40% drop off in volume overnight, BTC is now starting to gear up for more, as the daily volume has grown from $4.1 billion to $5.3 billion in the last six hours.

A quick glance at the market cap beyond Bitcoin is enough to justify the most dramatic of language, and once again one of the worst periods in recent times has fallen on ‘Monday Bloody Monday’.

Altcoin Top-Ten Rearranged

Everything looks different in the top ten this morning, with several pieces of altcoin furniture having been rearranged during the night’s turmoil. All of a sudden Stellar (XLM) finds itself in 5th spot, while EOS has been kicked down to 6th spot for the first time since its ICO ramped up to completion in early 2018. EOS has incurred 17.8% losses in the last 24 hours, descending to a coin price of $4.27 at the lowest point of the night.

Further down the pack, USDT Tether has jumped into 8th spot and is battling it out with Cardano (ADA), which plunged 24% today before stabilizing at net losses of 19%. ADA coins dipped to levels not seen since early November 2017 when they reached a value of $0.086 this morning, although they’ve since rebounded to the $0.09 range at the time of writing.

Further down still and IOTA was temporarily kicked down to 12th spot, behind TRON, as it recorded 24% losses for the day alone. TRON isn’t much better off, with losses similarly approaching the 24% mark.

While Ethereum won’t be displaced any time soon, it has been shaken as bad as any coin in the top ten today, with 20% losses coming as ETH falls to a coin price not seen since September 2017 at $256.58. Despite a rebound to $264 at the time of writing, Ethereum is still down nearly 40% over the last seven days.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 38 rated postsGreg Thomson is a full-time crypto writer and digital nomad. He eats ICOs for breakfast and bleeds altcoins. Wherever he lays his public key is his home.




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Analysis

Crypto Update: Altcoin Crash Continues, Ethereum Hits $250 as Bitcoin Holds Up

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The cryptocurrency segment endured another ugly overnight session, with the major altcoins plunging by double digits across the board yet again. The total value of the market is now handily below the $200 billion mark after the latest selloff, and despite the deeply oversold momentum readings, there is still no sign of even a short-term bottom, and our trend model continues to flash red too.

While Liteocin and Monero provided a glimmer of hope for bulls during the initial phases of the current leg lower, the coins that are among the laggards from a long-term perspective followed the broader market below support later on. With no bullish leadership forming, the strong downtrend is still dominant and traders should still remain defensive, despite the already heavy losses in the segment.

That said, in time, a more durable bottom is likely close, thanks to the negative sentiment and the oversold environment, but percentage-wise, further steep losses could be ahead.

ETH/USD, 4-Hour Chart Analysis

Ethereum is still in the epicenter of the decline, with a more than 15% daily decline, as the coin quickly got below the $275 level just after violating the $300 support, and even touched 4250 in early trading. The second largest coin fell through key zones without even a blink, and that points to forced liquidations in the market.

The coin is still on sell signals on both time-frames and traders still shouldn’t enter new positions. Support is now found at $260 and $230, while resistance is ahead between $275 and $280, and near $300.

BTC/USD, 4-Hour Chart Analysis

While sellers have been trying to push Bitcoin below the $6000 level amid the altcoin rout, the coin always managed to bounce back so far, and it continues to hold up clearly above the structurally important $5850 level.

The coin is still in a bullish secular trend and while the long-term picture is overwhelmingly bearish in the segment, the strength of the largest coin might be the basis of a coming recovery.  That said, the short-term downtrend is clearly negative in the BTC, and traders shouldn’t enter new positions. Resistance is still ahead at $6275, $6500, $6750, and $7000, while initial support is at $6000, while further support is found between $5000 and $5100.

Relentless Selling in Altcoins

XRP/USDT, 4-Hour Chart Analysis

Ripple still resembles a falling knife, similarly to most of the majors, and the coin continues to slide lower, as last week’s break-down led to a series of support breaches. The coin is now down by 40% in a bit more than a week, and it is currently testing the strong support zone near $0.26 after spiking briefly below it overnight. Should XRP hold above the spike low, traders could be looking for signs of a bottom, but for the coin is still on a clear sell signal.

XMR/USDT, 4-Hour Chart Analysis

With the smaller coins also being hammered lower, there is no real hiding place beside BTC in the segment, and yesterday’s slightly strong coins also broke down overnight. Monero violated the key long-term support near $80, which served as a base for the late-2017 run-up, and the coin is trying to hold its ground above that after the spike lower. While the downtrend is clearly intact, and the short- and long-term sell signals are in place, a recovery above $90, could point to the exhaustion of sellers.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 317 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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