Bitcoin's BIP110 Upgrade: A Potential Chain Split Looms

The Bitcoin protocol is on the verge of a significant change with the implementation of BIP110. This soft fork aims to limit the size of OP_RETURNs and reduce other types of data on the blockchain, but it lacks consensus among developers and miners.

Only about 1-2% of hash power has signaled support for BIP110 in recent weeks, while Bitcoin Core, the most-used implementation, has not adopted it. The mandatory signaling window starts from block 961,632, expected to be mined on or around August 8.

There are three possible scenarios for how this could play out. In scenario one, almost no miners signal support for BIP110, and blocks will continue to be mined as usual. However, nodes running Bitcoin Knots or other BIP110-enforcing software will stall and become unusable if they do not receive signaling blocks.

In scenario two, almost all miners signal support for BIP110, and the upgrade goes into effect across the entire network. However, there is a caveat that even in this scenario, miners can signal without actually using BIP110 software, which could lead to a split in the blockchain.