![segwit.jpg](https://steemitimages.com/DQmPwHr6LnCxna5x8GmQaPY7fMNQU2hMm6fZcZWYjGaDZGd/segwit.jpg)

SegWit activates on BTC in just over 36 hours, but what should we expect to happen?

Many have written about the technical and political details of SegWit being implemented for BTC and I'm not going to go over too much old ground here.  I want to have a look at what the effect of SegWit activation might be on the blockchain performance and how the markets might respond to any changes.

One of the much vaunted benefits of SegWit is that it frees up some space in the blocks for more transactions to be included.  It's not a lot of space, but it is not negligible either.  With the Bitcoin scaling debate having raged for a long time now I'd expect the market to be watching closely to see whether SegWit really makes much difference.  But how would we know?  Well I'm glad you asked....

The first thing I'll be looking at is the mempool size, which shows the aggregate size of transactions waiting to be confirmed on the blockchain.  You can see from the graph below that in the last 12 months the mempool size has exploded at various points, even more so than the price of Bitcoin itself.  We see the big spike in late May and again it is on the rise during August where we are post-Fork but pre-SegWit activation.

![mempool.png](https://steemitimages.com/DQmPXRGkgJwYnEBNkGU1xPCUyVChEWSbTY4iDMWd8qSTWg6/mempool.png)
_Graph courtesy of https://blockchain.info/charts_

I would expect that after SegWit goes active the Mempool size should start to come back to a more reasonable level.  Ideally below 20,000 and if it can do that after a few weeks (it may take some time for the extra block space to chip away at this transaction backlog) then this would be the first really positive indicator and the market should respond positively to this development.

If the mempool starts to drop down the next thing I'd expect to see would be the cost of transactions coming down also.  With less competition for transactions to get confirmed in the limited block space of pre-SegWit Bitcoin the users should be able to get more transactions confirmed with less fees.  If you have a look at the chart below you can see the miners revenue per transaction has been steadily increasing since about May 2017.

![transactions.png](https://steemitimages.com/DQmNvp2hHhseo8a4aKSfTc4iDryX5XU9gGhHaAFvFiRmgEw/transactions.png)
_Graph courtesy of https://blockchain.info/charts_

If the mempool starts dropping and the price and volume of Bitcoin stay at roughly the current level, then I'd expect to see the transaction costs start to come down too.  Of course, this development would also be well received by the market and we could expect to see a strong bid for BTC if transaction costs come down, so this is another graph worth keeping an eye on over the coming month(s).

Now when you put all this in context with what's been going on with Bitcoin Cash (BCH) recently it is all related.  On August 17, BCH survived a flood attack when it mined some large 4MB and 8MB blocks to clear over 80,000 transactions in just 4 blocks.  This was impressive as it proved to the market that it was a good scalable solution that could handle a lot more transactional load than it currently faces and the market responded with a buying spree that sent BCH up from $300 USD to a high of $996 USD according to CoinMarketCap - a rise of over 220% in less than 48 hours.

![bitcoincash.png](https://steemitimages.com/DQmR8qZikzTpnhpectXvm1dQfpCgeKecnBRas1vReME1uPb/bitcoincash.png)
_Graph courtesy of https://coinmarketcap.com/currencies/bitcoin-cash_

BCH has since cooled off a bit, but I'd expect it's price to be closely related to the SegWit activation on BTC also.  If the mempool and transaction costs of BTC don't start dropping within the first couple of weeks post-SegWit then we should see a fresh bid for BCH as a potentially more viable solution to handle future demand, but if we do see mempool and transaction costs start to drop (as I am predicting) then BCH may continue to sell off as BTC re-exerts its dominance as the premier Bitcoin solution - at least for now....

All up I'd expect these fundamental price drivers to play out over the next month and as we get closer to the likely SegWit2x hard fork I'm sure things will change, but for the short term I am bullish on BTC and bearish on BCH.