Bitcoin Faces Chain Split as BIP110 Approaches Activation

Bitcoin is facing a crucial moment as BIP110, a consensus protocol change aimed at reducing data on its blockchain, approaches activation. The upgrade intends to limit OP_RETURNs and other types of data but lacks broad support within the Bitcoin community.

Currently, only about 1-2% of miners signal support for BIP110, while Bitcoin Core, the most-used implementation, has not adopted it. However, some nodes like Bitcoin Knots will soon reject blocks that don't signal support for the upgrade, starting from block 961,632.

There are three possible scenarios for how this plays out. In the first scenario, almost no miners signal support, and BIP110-enforcing nodes become unusable. In the second scenario, all miners signal, and BIP110 goes into effect across the entire network. However, even in this case, there's a caveat: blockchain signaling doesn't guarantee that new rules will be enforced.

In the third scenario, a sizable minority of miners signals support, leading to an immediate chain split. This would result in two separate cryptocurrencies: Bitcoin with the original rules and BIP110 coin. A permanent split could occur if one side overtakes the other in length, but users can prevent this by manually invalidating blocks on the minority chain.