Bitcoin Faces a Fork This Weekend: What to Watch and What to Have in Order

This weekend, Bitcoin enters the decisive phase of its first serious consensus fight since the block size wars. The mandatory signalling window for BIP-110 opens at block height 961,632, currently estimated for the late evening of 8 August. Because activation runs on blocks produced rather than the calendar, the exact moment can shift by hours. 

What follows is a short guide to what is actually happening, what institutions holding or servicing Bitcoin should have in order today, and what to observe as the weekend unfolds.

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‍What is happening

BIP-110 is a proposed one-year soft fork that would restrict how much arbitrary data a Bitcoin transaction can carry, aimed at Ordinals-style inscriptions. As a rule change it is technically conservative: it only tightens validity rules — unlike a hard fork (such as a block size increase), which expands the set of valid blocks —. The controversy sits in its activation mechanism. Miner signalling for the proposal has remained in the low single digits against a 55% lock-in threshold, so early voluntary miner activation has not happened. From block 961,632, nodes enforcing BIP-110 enter a mandatory signalling period in which they reject blocks that do not signal support, even where those blocks are valid under existing rules. This mandatory signalling period marks the transition from miner-activated soft fork (MASF) phase into user-activated soft fork (UASF) phase.

From block 965,664, roughly four weeks after block 961,632, the substantive data restrictions of the soft fork will be enforced. The risk of a chain split, however, materialises earlier, with the beginning of mandatory signalling this weekend. BIP-110-compliant nodes will reject non-signalling blocks with valid proof of work, while legacy nodes will accept both signalling and non-signalling blocks. Competing chains could therefore emerge: one following the existing rules and another enforcing BIP-110.

In principle, this creates an asymmetric advantage for the BIP-110 side. A chain valid under BIP-110 remains valid under the existing rules, whereas a chain valid under the existing rules may be invalid under BIP-110. This gives miners a strategic incentive to signal, even if they do not actually support the fork: before any split, signalling maximises the number of nodes that will accept their blocks. If a split nevertheless occurs and the BIP-110-compatible branch subsequently overtakes the legacy branch in accumulated work, legacy nodes can reorganise onto it, potentially wiping out blocks mined on the competing branch. The reverse does not apply: BIP-110 nodes cannot reorganise onto a higher-work legacy branch containing a block they consider invalid. Once the chains have diverged, however, signalling alone is no longer sufficient for compatibility with BIP-110: miners must also build on a BIP-110-valid ancestor. Being on the winning chain therefore matters for them too, since on either side, miners on the losing branch may have spent millions on electricity producing blocks that are ultimately discarded. The BIP-110 side does not face the risk of reorganising onto an incompatible legacy chain, but it faces a similar risk of abandonment.

A supermajority of miners could, for example, coordinate around ignoring the fork, allowing the legacy chain to accumulate far more work than the alternative. The BIP-110 chain could then stall before fully activating: its difficulty would initially reflect a much larger mining base than the one actually supporting it, potentially leaving it finding only one or two blocks per day and taking an extremely long time to complete the signalling period. In such circumstances, BIP-110 supporters might regard miners’ refusal to enforce the new rules as a miner-led attack on the network and seek to “fire the miners” by changing the proof-of-work algorithm, replacing double-SHA-256 with another algorithm. The soft fork would then have been followed by a hard fork.

Several outcomes are therefore possible. BIP-110 could quickly impose itself, leaving users waking up on Sunday to a Bitcoin network operating largely as normal. At the opposite extreme, BIP-110 could attract too little mining and economic support to sustain itself, leaving only a small minority on the alternative chain. More unstable outcomes lie between these extremes: two competing blockchains could retain meaningful support, creating substantial reorganisation risk on the legacy side, or a subsequent proof-of-work change could attract significant support. In those scenarios, disruption could persist for days or longer.

A note to avoid confusion: this is unrelated to the eCash hard fork expected later in August at block 964,000, which is a deliberate split creating a separate chain. The two events are being bundled in press coverage but follow entirely different logic.

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‍What to have in order before the window opens

If a split occurs, every holder has coins on both chains, and transactions signed on one chain can potentially be replayed on the other. The conservative posture until the situation clarifies:

•⁠  ⁠Minimise on-chain movement. A transaction broadcast during a contested period may be replayed across chains, with unintended loss on one of them.

•⁠  ⁠Review leveraged positions. Bitcoin-collateralised loans face liquidation risk if price dislocations follow a split. Closing or over-collateralising positions before the weekend removes a variable.

•⁠  ⁠Consider Lightning exposure. Open channels during a chain split introduce settlement uncertainty that is difficult to resolve after the fact. Lightning channels assume both parties can “see” the blockchain, but during a split, each party may be looking at a different blockchain.

•⁠  ⁠Ask the custody question now. If you hold Bitcoin through an intermediary, which chain will your custodian or exchange follow, and will you be credited on both? Support for a forked chain is decided provider by provider. Entitlement to post-split balances is a function of your custody agreement, and many agreements are silent on it. That silence is a legal question worth raising before the event rather than after. Uncertainty may be avoided by removing the coins to cold storage, but this should be done prior to the split, per the first recommendation.

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‍What to observe over the weekend

• The percentage of blocks signalling for BIP-110 once mandatory signalling begins, and whether any meaningful hashrate joins the enforcing side.

• Whether the enforcing side proceeds to split onto a separate chain, and if so, whether it changes its proof-of-work algorithm to survive.

• Custodian, exchange and wallet provider announcements on chain support, deposit suspensions and crediting policy. These operational decisions, more than the protocol debate itself, will determine what most holders actually experience.

• Price behaviour across venues, particularly any divergence suggesting markets are pricing two chains.

• How quickly resolution comes. The signalling architecture runs in 2016-block periods, so the contest could resolve within days or run for weeks.

Bitcoin has split before and the network survived. The legal and operational questions a split raises for intermediated holdings, however, remain genuinely unsettled, and they are the questions we expect institutions to be confronting first. We will publish a full assessment once the weekend's events have played out. In the meantime, if your institution needs support thinking through custody entitlements, client communications or the regulatory treatment of a forked asset, the Alliance and its members are available for consultation.

We are keeping our eyes on the situation and we will come up with updates so make sure to stay tuned.