Woofun AI reports that Bitcoin faces a dual crisis of declining market prices and internal governance conflict, centered on the potential implementation of BIP-110. This proposal, authored by Ashrith Rao and compiled by Chopper for Foresight News, introduces a mandatory activation pathway that could transform a technical disagreement into a tangible risk of blockchain fragmentation. The convergence of these issues creates a precarious environment where ideological differences, festering since the release of Bitcoin Core version 30 in October 2025, are amplified by market uncertainty. The crypto market is currently attempting to establish a price bottom amidst this dispute, making the resolution of the BIP-110 standoff critical for determining whether Bitcoin’s next cycle proceeds along a single mainchain or splits into two distinct entities.

The timeline for this confrontation is anchored by a key deadline set for August 7, 2026, which corresponds to block height 961632. This date marks the point at which the fate of the network’s structure will be decided. The origins of the proposal trace back to December 2025, when developer Dathon Ohm introduced BIP-110 as a 'reduction of temporary data soft fork.' Designed as a soft fork valid for one year, the proposal focuses exclusively on data control within blocks and explicitly carries no political agenda.

Its technical scope aims to restrict the use of OP_RETURN, a field in Bitcoin transactions used to store additional data. Currently, OP_RETURN has a limit of 83 bytes, while most new output scripts are limited to 34 bytes. The proposal also imposes constraints on various technologies that handle external data, including large data transmissions, witness items, and certain unspecified witness versions. Importantly, existing historical data on the blockchain will not be removed; only future transactions will be subject to these new rules.

The controversy surrounding BIP-110 centers on inscriptions and various non-financial types of data that have been occupying Bitcoin block space since 2022. Proponents argue that such applications deviate from Bitcoin’s original purpose as a payment and settlement system. They contend that these uses increase the operating costs of full nodes and continuously expand the scale of unspent transaction outputs (UTXO).

However, what truly sparks significant controversy is the activation mechanism of the proposal. BIP-110 relies on a bit-4 signaling mechanism to design a market-driven path for smooth, locked activation. Within a difficulty cycle of 2016 blocks, 55% of the hash rate votes are required for successful activation. Since monitoring began on December 1, 2025, the proportion of votes supporting the proposal has remained low, hovering between 0.3% and 0.4%. The latest observations show a minimum of 0% and a maximum of only 0.

86%. If the regular voting channel fails to meet the threshold, a forced execution plan will be activated, forcing the change to take effect at block height 961632. By that time, regardless of the stance of the majority of the network’s hash rate, nodes running BIP-110-compatible clients, mainly Bitcoin Knots, will begin rejecting blocks that do not comply with this rule. Critics say that this strategy, modeled after UASF in 2017, turns what seems like a minor technical discussion into a major governance conflict.

Woofun AI data shows that the current total hash rate of the Bitcoin network is around 940 EH/s, while the hash rate supporting BIP-110 is less than 1%, at approximately 5 EH/s. Most of the observable voting blocks come from mining firm Ocean, which is associated with Jack Mallers and Adam Back. The majority of Bitcoin hash rate holders either remain indifferent or explicitly oppose the proposal. The huge gap in support rates highlights the serious consequences if BIP-110’s mandatory pathway is activated.

If a small number of nodes force through rules rejected by the majority of hash rate holders and nodes, it won’t result in the rules taking effect but rather give rise to two separate, legitimate blockchain networks. Both chains will accept blocks that comply with BIP-110’s strict rules, but non-BIP-110 nodes can accept blocks that don’t meet the requirements, while BIP-110 nodes will reject them outright. The fact that BCH’s current price is only a fraction of BTC is the most straightforward example of how the market views forked chains lacking sufficient hash rate support.

As the deadline approaches, the opposition camp’s strength is growing instead of weakening. On July 18, Michael Saylor published an essay titled '110 Reasons Against BIP-110,' delivering a fierce critique. He argued that Bitcoin’s consensus layer should not define the 'legitimate uses' of fee-based transactions. Rather than focusing on whether spam transactions are rampant, he is more concerned about the risk of setting precedents. Once consensus rules start distinguishing between 'compliant' and 'non-compliant' transactions, this paradigm will become permanently entrenched and could be abused by those who try to manipulate rule updates in the future.

He also pointed out that BIP-110 will limit future upgrade possibilities—contract solutions like BitVM, which rely on data flexibility, will be constrained by the proposal. Adam Back and Jameson Lopp put forward similar but independent views: the activation mechanism itself is highly risky. Successful past Bitcoin upgrades, such as SegWit and Taproot, received over 90% hash rate support before being officially implemented. In comparison, a 55% threshold is already quite low. With the current natural voting support rate below 1%, forced activation will only create division rather than achieve consensus.

Many industry professionals have chosen to remain neutral in this intense debate. Jimmy Song publicly stated, 'I don’t know enough about this mechanism to assess the consequences of each path,' a remark that drew widespread criticism. In this context, a neutral attitude is often seen as avoiding a clear stance. On the other side, Bitcoin Knots developers and BIP-110 supporters cite changes made in Core version v30 in October 2025: the client increased the default relay strategy limit for OP_RETURN from 83 bytes to around 100,000 bytes, a more than 1,200-fold increase.

The Core team defines this as an adjustment to the relay strategy, not a change to consensus rules, arguing that relay filtering cannot eliminate spam data, as external data can be embedded in ordinary transaction outputs in the form of hashes, making it difficult to intercept. Technically, this view holds true—relay layers cannot completely prevent arbitrary data storage. This is also the core argument of BIP-110 opponents, who claim the solution addresses only symptoms rather than the root cause. It not only fails to eradicate the problem but may also lead to a blockchain split during attempts to fix it.

It was Core’s release of version v30 without extensive community consultation that gave rise to the Bitcoin Knots branch; months later, BIP-110 was created as a response.

Another Risk Factor: Sztorc’s eCash Hard Fork

Besides BIP-110, the market will face another variable in August. Around the same time as BIP-110, Paul Sztorc, the proposer of the Drivechain proposals (BIP 300/301), announced that he would initiate an independent hard fork targeting block height 964000. This plan will create a new SHA-256d public chain that starts in exactly the same state as Bitcoin. After the fork is initiated, the network’s difficulty will be adjusted again, and all BTC holders will receive an equal amount of the new fork assets.

Unlike BIP-110, this fork does not impose data restrictions; its main goal is to promote scalability and sidechains, implementing sidechain expansion plans that have been delayed for years. Although the two fork events stem from independent causes, they will create a cumulative risk effect. Before and after the mandatory signaling period begins, exchanges, custodians, wallet providers, and institutional holders all need to decide whether to support BIP-110 simultaneously, while also dealing with the distribution of 1:1 fork tokens.

There is no coordinated plan between them—just a coincidence in timing—that will exert huge pressure on the entire industry within three weeks.

Market Impact

Since hitting a peak in October 2025, Bitcoin is currently in a phase of building a bottom for its price. Although some institutions continue accumulation during the decline, BlackRock’s IBIT Bitcoin ETF saw significant outflows in June. The market is already digesting macro-level pricing reevaluations, and governance disputes along with potential fork-related risks are piling up. In a bull market at its peak, such risks might be easily ignored, but the current environment amplifies panic.

The market has not yet regarded BIP-110 as an independent, highly liquid binary event. Bitcoin price contracts on Polymarket in mid-to-late July show that traders generally expect Bitcoin’s price to remain between $50,000 and $60,000 at the beginning of August. This aligns with hash rate data: if the hash rate vote remains below 1% three weeks in advance, BIP-110 is likely to fail to be activated through normal channels. The most direct question is whether the Bitcoin Knots camp’s nodes will still adhere to the mandatory strategy if the regular activation path fails.

The final decision is not in the hands of market forces but lies with a small group of client maintainers. If the mandatory pathway is implemented, the market may react in a predictable way: the original chain supported by the majority of miners and exchanges is likely to become the core of liquidity, hash rate, and price determination. 'The market will ultimately resolve the dispute' and 'the market can resolve the dispute without paying a price' are two entirely different statements.

Chain forks will create many short-term problems: risks of replay attacks, chaotic listing rules for exchanges, uncertainty over ownership of custodied assets, and risk premiums (manifested as an expanded bid-ask spread and reduced order depth). In an environment where market confidence is already weak, the impact will be even more pronounced. On August 7, 2017, the market faced a severe test; now, it must see if Bitcoin can truly shed the shadow of the governance crisis of that year.