Before answering this lets understand what solution both are proposing! To be honest, Bitcoin Unlimited and Segwit provides mutually exclusive solutions means both are providing different solution for different problems. To me, Bitcoin Unlimited provides the urgent and accurate solution on top of which Segwit can be implemented as a soft fork later on. But why so? Let’s try to understand both of them first!
Bitcoin Unlimited- As per name it removes the limit of block size and give this privilege to miners to decide which block size they want to mine to depending upon competition with other miners. But there are some problems that everybody is concerned about after implementation of BU.
a) Centralization- As per Bitcoin Core team’s argument bitcoin will become centralized because of two reasons
1. The transaction records that will be stored on the distributed nodes will become huge in size roughly of Petabytes that common man won’t be able to afford to store such huge amount of data.
2. Running a decentralized node itself will become a challenge for common man because it will require huge computing power and Internet bandwidth to keep running for 24 hours and keeping the network distributed in nature. Moreover there is no incentive of running such nodes that will discourage them to shut off the nodes.
So big companies will be able to afford such nodes and the control will ultimately come in hands of big corporates which itself will divert from the original idea of decentralization of Satoshi Nakamoto.
b) Chain Split- This is more serious and complex issue that everybody is afraid of. With Bitcoin Unlimited, hard fork will happen, that means the change in the block size will be done in the original code and eventually there is a high probability of chain splitting to two parts that means, one chain will be running on original code that will be called as Bitcoin (BTC) and other forked chain will be Bitcoin Unlimited (BTU). The reason for chain split is that not everyone is ready for hard fork and there is no equal consensus for hard fork. If everybody gives green signal to Hard fork and support them then there won’t be much problem but the problem has become so much political that it has been taken as most negative solution so far
c) Successfully Attacked before- The bitcoin unlimited code has been attacked successfully before making it vulnerable to attack again but as per statements from Bitcoin Unlimited developer team, that the bugs which were found has been fixed now and we still are not sure until the final successful attempt of bitcoin unlimited is seen
Segregated Witness (Segwit) – SegWit offers a moderate increase of the block size to up to 4 MB moving some non-critical data out of the blocks. But actually it is not increasing the block size by hard fork, the block size will still remain as 1 MB. It was originally created to fix an unrelated issue — transaction malleability which means to get rid of the bug which changes the hash address of bitcoin although it does not affect bitcoin overall in terms of security. It is a bug which needs to be fixed upon but not urgent bug in front of block size issue.
Segwit too has some problems which are very complex in nature for a non-technical person but still I will try to explain in plain English to make users understand of the actual problem:
a) Centralization- Segwit isn’t perfectly decentralized either. Due to sidechains and Lightning network built on top of blockchain will result in reduction of full validating decentralized nodes. That said, the developers will have the ability to make the changes on sidechains and lightning network as it won’t be directly part of bitcoin blockchain. There is a susceptibility that central bankers are trying to take control of bitcoin through this method through which all transactions can be tracked and user privacy will be finished with time
“The problem here is that for many members of the cryptocurrency community, there is no real distinction between “a mutual settlement system maintained by a trusted third party” and banks, which are central points of authority that Bitcoin was supposed to make obsolete.” — By Andrew Marshall
b) Block Size Limit- Block size as said before won’t be increased actually. It will become capable to handle data up to 4 MB max by cutting out irrelevant data from the blockchain but still it can go max up till 20 transactions per second from 3 to 7 transactions per second which still be a nightmare in the scalable reality of competing with Visa. That being said after 2–3 years this problem will come again because of further growth in Bitcoin community
c) Complex Code- Some experts have validated the code and came to the conclusion that the segwit code itself is so complex that it will be difficult to even reverse the soft fork or changes that if that being done, it can seriously affect the bitcoin.
d) 95 % consensus almost impossible — To activate segwit, 95% consensus is required which according to me is nearly impossible to achieve and looking at the urgency of the block size solution for ongoing bitcoin problem, it becomes a nightmare that segwit can be activated.
e) High Transaction fees- The transaction fees will remain higher for the bigger transaction size which will reduce the original use case of bitcoin for cross border business dealings.
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