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What are the key risks/drawbacks to SegWit and why did the Bitcoin Cash community conduct a risky hard fork to avoid it?

There's no technical reason to not to support segwit.

The main emotional arguments were that this was better done as a hard fork rather than a soft fork, but this ultimately would have resulted in a handful of bytes being different in the resulting block. SegWit was originally designed as a hard fork before the realization that it could be implemented using traditional upgrade paths, to exemplify that. As a hard fork, SegWit would have resulted in substantially more disruption of the network for an almost immeasurable efficiency gain.

Claims at the time that miners could steal outputs from SegWit addresses is demonstrably false. P2SH worked in a similar way, and has the same threat model, even at the time storing billions of USD worth of Bitcoin in its scripts. As the rules are enforced by nodes, rather than miners, this claim is largely based on a misunderstanding of the security model of Bitcoin.

It would disable Bitmain's ASIC advantage with ASICboost, which currently still works on Bcash that Bitmain controls alot of.

See more details here:

https://medium.com/@WhalePanda/asicboost-the-reason-why-bitmain-blocked-segwit-901fd346ee9f

and:

https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2017-April/013996.html

A month ago I was explaining the attack on Bitcoin's SHA2 hashcash
which is exploited by ASICBOOST and the various steps which could be
used to block it in the network if it became a problem.

While most discussion of ASICBOOST has focused on the overt method of
implementing it, there also exists a covert method for using it.

As I explained one of the approaches to inhibit covert ASICBOOST I
realized that my words were pretty much also describing the SegWit
commitment structure.

The authors of the SegWit proposal made a specific effort to not be
incompatible with any mining system and, in particular, changed the
design at one point to accommodate mining chips with forced payout
addresses.

Had there been awareness of exploitation of this attack an effort
would have been made to avoid incompatibility-- simply to separate
concerns. But the best methods of implementing the covert attack are
significantly incompatible with virtually any method of extending
Bitcoin's transaction capabilities; with the notable exception of
extension blocks (which have their own problems).

An incompatibility would go a long way to explain some of the more
inexplicable behavior from some parties in the mining ecosystem so I
began looking for supporting evidence.

Reverse engineering of a particular mining chip has demonstrated
conclusively that ASICBOOST has been implemented in hardware.

On that basis, I offer the following BIP draft for discussion. This
proposal does not prevent the attack in general, but only inhibits
covert forms of it which are incompatible with improvements to the
Bitcoin protocol.

I hope that even those of us who would strongly prefer that ASICBOOST
be blocked completely can come together to support a protective
measure that separates concerns by inhibiting the covert use of it
that potentially blocks protocol improvements.

The specific activation height is something I currently don't have a
strong opinion, so I've left it unspecified for the moment.

   BIP: TBD   Layer: Consensus   Title: Inhibiting a covert

attack on the Bitcoin POW function   Author: Greg Maxwell    Status: Draft   Type: Standards Track   Created:

2016-04-05   License: PD 

==Abstract==

This proposal inhibits the covert exploitation of a known
vulnerability in Bitcoin Proof of Work function.

The key words "MUST", "MUST NOT", "REQUIRED", "SHALL", "SHALL NOT",
"SHOULD", "SHOULD NOT", "RECOMMENDED", "MAY", and "OPTIONAL" in this
document are to be interpreted as described in RFC 2119.

==Motivation==

Due to a design oversight the Bitcoin proof of work function has a
potential attack which can allow an attacking miner to save up-to 30%
of their energy costs (though closer to 20% is more likely due to
implementation overheads).

Timo Hanke and Sergio Demian Lerner claim to hold a patent on this
attack, which they have so far not licensed for free and open use by
the public. They have been marketing their patent licenses under the
trade-name ASICBOOST. The document takes no position on the validity
or enforceability of the patent.

There are two major ways of exploiting the underlying vulnerability:
One obvious way which is highly detectable and is not in use on the
network today and a covert way which has significant interaction and
potential interference with the Bitcoin protocol. The covert
mechanism is not easily detected except through its interference with
the protocol.

In particular, the protocol interactions of the covert method can
block the implementation of virtuous improvements such as segregated
witness.

Exploitation of this vulnerability could result in payoff of as much
as $100 million USD per year at the time this was written (Assuming at
50% hash-power miner was gaining a 30% power advantage and that mining
was otherwise at profit equilibrium). This could have a phenomenal
centralizing effect by pushing mining out of profitability for all
other participants, and the income from secretly using this
optimization could be abused to significantly distort the Bitcoin
ecosystem in order to preserve the advantage.

Reverse engineering of a mining ASIC from a major manufacture has
revealed that it contains an undocumented, undisclosed ability to make
use of this attack. (The parties claiming to hold a patent on this
technique were completely unaware of this use.)

On the above basis the potential for covert exploitation of this
vulnerability and the resulting inequality in the mining process and
interference with useful improvements presents a clear and present
danger to the Bitcoin system which requires a response.

==Background==

The general idea of this attack is that SHA2-256 is a merkle damgard
hash function which consumes 64 bytes of data at a time.

The Bitcoin mining process repeatedly hashes an 80-byte 'block header'
while incriminating a 32-bit nonce which is at the end of this header
data. This means that the processing of the header involves two runs
of the compression function run-- one that consumes the first 64 bytes
of the header and a second which processes the remaining 16 bytes and
padding.

The initial 'message expansion' operations in each step of the
SHA2-256 function operate exclusively on that step's 64-bytes of input
with no influence from prior data that entered the hash.

Because of this if a miner is able to prepare a block header with
multiple distinct first 64-byte chunks but identical 16-byte second
chunks they can reuse the computation of the initial expansion for
multiple trials. This reduces power consumption.

There are two broad ways of making use of this attack. The obvious way
is to try candidates with different version numbers. Beyond upsetting
the soft-fork detection logic in Bitcoin nodes this has little
negative effect but it is highly conspicuous and easily blocked.

The other method is based on the fact that the merkle root committing
to the transactions is contained in the first 64-bytes except for the
last 4 bytes of it. If the miner finds multiple candidate root values
which have the same final 32-bit then they can use the attack.

To find multiple roots with the same trailing 32-bits the miner can
use efficient collision finding mechanism which will find a match with
as little as 2^16 candidate roots expected, 2^24 operations to find a
4-way hit, though low memory approaches require more computation.

An obvious way to generate different candidates is to grind the
coinbase extra-nonce but for non-empty blocks each attempt will
require 13 or so additional sha2 runs which is very inefficient.

This inefficiency can be avoided by computing a sqrt number of
candidates of the left side of the hash tree (e.g. using extra nonce
grinding) then an additional sqrt number of candidates of the right
side of the tree using transaction permutation or substitution of a
small number of transactions. All combinations of the left and right
side are then combined with only a single hashing operation virtually
eliminating all tree related overhead.

With this final optimization finding a 4-way collision with a moderate
amount of memory requires ~2^24 hashing operations instead of the

2^28 operations that would be require for extra-nonce grinding which would substantially erode the benefit of the attack.

It is this final optimization which this proposal blocks.

==New consensus rule==

Beginning block X and until block Y the coinbase transaction of each
block MUST either contain a BIP-141 segwit commitment or a correct
WTXID commitment with ID 0xaa21a9ef.

(See BIP-141 "Commitment structure" for details)

Existing segwit using miners are automatically compatible with this
proposal. Non-segwit miners can become compatible by simply including
an additional output matching a default commitment value returned as
part of getblocktemplate.

Miners SHOULD NOT automatically discontinue the commitment at the
expiration height.

==Discussion==

The commitment in the left side of the tree to all transactions in the
right side completely prevents the final sqrt speedup.

A stronger inhibition of the covert attack in the form of requiring
the least significant bits of the block timestamp to be equal to a
hash of the first 64-bytes of the header. This would increase the
collision space from 32 to 40 or more bits. The root value could be
required to meet a specific hash prefix requirement in order to
increase the computational work required to try candidate roots. These
change would be more disruptive and there is no reason to believe that
it is currently necessary.

The proposed rule automatically sunsets. If it is no longer needed due
to the introduction of stronger rules or the acceptance of the
version-grinding form then there would be no reason to continue with
this requirement. If it is still useful at the expiration time the
rule can simply be extended with a new softfork that sets longer date
ranges.

This sun-setting avoids the accumulation of technical debt due to
retaining enforcement of this rule when it is no longer needed without
requiring a hard fork to remove it.

== Overt attack ==

The non-covert form can be trivially blocked by requiring that the
header version match the coinbase transaction version.

This proposal does not include this block because this method may
become generally available without restriction in the future, does not
generally interfere with improvements in the protocol, and because it
is so easily detected that it could be blocked if it becomes an issue
in the future.