Bitcoin's 'Fork' In The Road

Tyler Durden's picture

Authored by Vinny Lingham,

I’ve been very surprised with the amount of vocal support for a Bitcoin Hard Fork - especially from many Bitcoin supporters who believe it is either inevitable or “not a bad thing”. I get it, but you’re wrong. I know everyone is tired of the scaling debate. I’m not going to go into the technical details around this debate for this post, but instead, I’m going to focus this post on debunking the non-technical arguments for a Hard Fork and highlighting the ensuing confusion and market impact that a contentious Bitcoin Hard Fork will have, if we indeed have a split between Bitcoin Core and Bitcoin Unlimited.

Exchanges today have just confirmed they will be listing BTU as an altcoin if there is a Hard Fork?—?this scares me because although the industry person knows what an altcoin is?—?the average person outside the industry doesn’t. This was the catalyst for my post today.

I have predicted that Bitcoin should hit $3,000 by end of this year?—?but not if there is a contentious Hard Fork.

Keep in mind that the hope of this post is that it changes the mindset around support for a contentious Hard Fork, which creates another Bitcoin, because I believe this needs to be avoided at all costs. In fact, if any of the scenarios below begin to play out, we’re already in trouble… If you agree with the logic below, translate this post into Mandarin and any other language and let’s convince miners and the community to not consider even doing a Bitcoin Unlimited Hard Fork.

Also, even after the big bug in Bitcoin Unlimited yesterday, more nodes are back up and running signalling it. I know many people don’t believe it will happen and they may be right, but we cannot ignore a persistent and growing threat to the ecosystem and so I’m speaking out about it now.

For more background on the Bitcoin Unlimited vs Segwit debate, check the bottom of this post for links, including a number of technical reasons why a Hard Fork is a risky proposition for Bitcoin. I’m also not delving into the technical debate as that has been done ad nauseam elsewhere.

Bitcoin’s greatest asset is its brand awareness!

It’s inarguable that Bitcoin is the single strongest brand in the crypto space. I believe it probably received $2–5bn in free media exposure over the years. A Hard Fork would create 2 brands of Bitcoin?—?essentially handing over some brand value to Bitcoin Unlimited. I wrote a post about Bitcoin’s power and network effect over 2 years ago?—?it’s worth reading if you haven’t.

The moment there is a hard fork, we are going to allow brand confusion to step in. This is a HORRIBLE idea.

The security of the Bitcoin network comes from the computational hash power that the miners bring. This is driven by the price of Bitcoin?—?higher the price, more hashing power. High prices are in turn driven by market demand. Market demand is driven by PR & media and the long term narrative that Bitcoin is the first and only true cryptocurrency which is a long term store of value. If we mess with this, I believe we can expect negative consequences…

When the media declared Bitcoin was dead in 2014, it took us a long time to recover, price wise.

Bitcoin Unlimited will just become an altcoin if it doesn’t have majority support?—?why does it matter?

In the event that 35–50% of miners broke away and created an altcoin, in this case?—?Bitcoin Unlimited, we would essentially then have 2 coins. Bitcoin (BTC) & Bitcoin Unlimited (BTU). One could argue that BTU is not Bitcoin, but it may still be called Bitcoin by the man on the street. For instance, if he buys what he thinks is Bitcoin, to buy some gift cards at Gyft, only to discover that he bought the wrong Bitcoin?—?can you imagine the issues that merchants are going to have now in dealing with the customer support fallout. In all or many cases, they may even remove Bitcoin as a payment method, unless the business is Bitcoin only, in order to avoid customer confusion or the risk of the individual coins fluctuating in price between purchase and usage.

As much as the crypto world is smart enough to understand the differences, the average person barely understands Bitcoin today and forcing them to tell the difference between BTU & BTC is going to be a big challenge.

Let’s not forget some other important points: Roger Ver (the force behind Bitcoin Unlimited aka Bitcoin Jesus) also owns Bitcoin.com (and a number of other strong domain names) and he also owns a couple of hundred thousand Bitcoins (apparently around 300k BTC).

When Bitcoin forks, everyone who is holding BTC, would receive an equal amount of BTU?—?so Roger would have presumably 600k coins (300BTC +300 BTU) according to industry rumours.

The moment Bitcoin splits, he is able to legitimize Bitcoin Unlimited using Bitcoin.com?—?which for the uninitiated would actually be a legitimate source of information, and is highly ranked on search engines like Google. Bitcoin Unlimited would effectively become Bitcoin.com. My first company was in search engine marketing?—?I know this world all too well.

If there was a fork and Roger wanted to pump Bitcoin Unlimited, he could literally dump all his Bitcoin (BTC) holdings into the market. I don’t want to even guess what 300,000+ coins being moved in a short space of time would do to prices, especially after a contentious hard fork where new money investors would already be on the sidelines. This happened to Ether Classic after the Ether Fork?—?the Ether Foundation sold off 90% of their coins and depressed the price. Just the threat of this alone will cause the market to tank for BTC, just for starters. If Roger wants to kill Bitcoin’s price and legitimacy, there is no reason to not fear this and the market will start pricing in this risk.

Roger would not be the only person to sell down BTC. Other BTU loyalists who have two sets of coins would do the same, initially in order to drive down BTC. Conversely, all the long term BTC holders would now receive equal amounts of BTU. Even the most hard core BTC Hodlers would probably sell down BTU with all their BTU coins in order to try and crush it. Given the importance of BTC as a reserve asset in altcoins, many traders could use weakness in price to short BTC and drive their altcoin prices up.

Long story short?—?none of these scenarios (or any others I can think of) play out well for Bitcoin, either in the markets or the media and this fundamental divide means that you’re going to have increased volatility from both sides, as more coins will pour into the market?—?crushing any demand side driven rally.

The whole point about Bitcoin being a long term store of value is that there are only 21m coins, ever. Stability, security and scarcity are the differentiation properties of Bitcoin, a contentious Hard Fork attacks these properties and will be strongly reflected in the price. After a Hard Fork, we will be sitting with 33m “Bitcoins”, on track for 42m and we’ll be having arguments about which one is the legitimate Bitcoin for years to come. You can expect legal cases to arise around the use of the brand, as the Ethereum Classic Investment Trust has shown.

Imagine someone says: I want to buy Bitcoin. Next question is: Which one?! After that, the very next question will be :

“What if one of these coins fork again?—?then we will have 63m coins, and so on and so forth.”

But, aren’t two coins are better than one! The market will adjust!

Let’s say the price of Bitcoin today is $1,000?—?if doing a 75%/25% split would now mean that you have have 2 coins, this should mean they are worth $1,000 ($750+$250). So, I did a simplified calc based on Metcalfe’s law, and it estimated the new coins combined could be worth more than 33% less almost immediately after a Hard Fork due to reduced network effects, and that’s assuming everything went well... With the ensuing FUD and negative press/media?—?you can expect this to drop even further! Bitcoin’s enemies can’t wait for an opportunity like this.

Creating two networks destroys network effects (payment providers, merchants, etc) and the Bitcoin price is non-linear to size of network, so the two coins combined will not equal the same price. You can compare this to the Ether split, as Bitcoin is at scale ($20bn) and Ether wasn’t at the time and it definitely set them back.

Bitcoin has died many times, it can survive a Hard Fork! Even Ethereum did.

Let’s start over. Ethereum is a B2B facing platform?—?consumers & media don’t know or really care about it. Bitcoin is a $20bn asset class. And yes, after the media declared Bitcoin dead after the last “bubble”, it took us 2+ years to rebuild the price by generating demand organically. The media attention this time during the recovery and cross the price of gold does not even come close to last time when it was taking off like a rocket. If a split is portrayed badly in the media and creates confusion, we will possibly go into another 2 years of sideways and down. Do we have that much time again with other competitors on the heels? And let’s be frank, a Hard Fork is not Bitcoin dying. It’s Bitcoin duplicating. Now we have two Bitcoins, both won’t die, maybe one will. Which one is the real Bitcoin? Do not underestimate how many enemies Bitcoin has?—?a fork will just give them all the ammunition they need to confuse the market.

Who cares if 30% of the miners fork off?

Bitcoin’s price is a function of faith and network security, given the large amount of computing power that goes into it. Metcalfe’s law dictates that the value of the network is the square of the network. By splitting the network even 70/30, it’s inarguable that it’s less secure. Yes, it could rebuild but, depending on the price of each coin after the split, hash power may move from one coin to the other. These are highly specialized machines and one coin surges in price, you can expect hash power to follow suit.

Remember that one of the biggest mining companies, Bitmain, is now signaling support for Bitcoin Unlimited. It’s very clear that the current difficulty of Bitcoin makes it harder and harder to compete in this market, but after a Hard Fork, there would need to be a difficulty adjustment on both new forks, given the reduced hash power?—?this opens up the opportunity for Bitcoin mining companies to sell more hardware to miners on both sides of each coin.

The sales of mining equipment are a huge economic disincentive to maintain the status quo without a block size increase, unless the Bitcoin price surges which I don’t believe will happen unless Segwit is adopted and then this debate is over. I called 1300 as a key resistance level and it’s proving to be.

Bitcoin was largely built on the premise that economic forces and self interest would help govern the security of the network. We talk a lot about decentralization but the reality is that the hardware that powers Bitcoin is produced by a handful of companies who also control mining pools which can be used against the network.

Bitcoin has a product & people problem, not a technical problem. A fork will resolve it because both sides get what they want.

The real issue, I believe is two-fold. The community wants Bitcoin to be all things to all people?—?Roger wants cheap coffee transactions, Core wants to ensure its sufficiently decentralized and secure, Vinny wants a store of value, etc.

We have a governance problem in Bitcoin and we have no way to resolve conflict except to fight about it, publicly and given that it’s quasi-democratic, unless we all agree on something, nothing gets done. This has burned a lot of people and I can see why we have so many altcoins out there trying to replace Bitcoin.

Bitcoin cannot be all things to all people, at least, not a for a long time. Right now, it needs to be stable, secure and unchallenged. We can continue to argue amongst ourselves as a community, but for now I am against any contentious Hard Fork that would see us creating two separate code bases with two different brands of Bitcoin.

Companies like Coinbase, BitPay, Gyft, BitPesa, Bitgo and many others have invested years to build consumer adoption and understanding of Bitcoin and create outlets for people to use it. A fork now would undermine all these efforts, investments and limit adoption of Bitcoin in general. Unlike in the Ethereum Hard Fork, 100s of companies use Bitcoin and this would lead to a lot of counterproductivity. Companies should be focused on advancing adoption of their products, not in protocol fights. This debate has already been a strain on the community.

I understand and appreciate many of the different perspectives?—?some which I have not had the time to mention in this post, but given a balance of risks to the Bitcoin ecosystem, I believe that the adoption of Segwit right now is imperative in order for us to get to the next stage in the evolution of Bitcoin and remove the risks of a contentious Hard Fork. The Core Dev team has had a lot of criticism leveled at them and clearly they are not good at community relations, managing perceived conflicts of interests (like Blockstream’s involvement), which has resulted in emotions flaring up against them which is causing an uprising of sorts as we are now seeing. Technically, however, it’s inarguable that they are the best technical team in Bitcoin today.

If we all just breathe out, and put aside our differences and emotions (even just for a while), let’s accept that doing a Hard Fork right now is NOT in the best interest of Bitcoin and let’s please just adopt Segwit.

This post is not trying to be an endorsement or critique of either BU or Core. This post is asking the community to put aside their differences and come together to prevent an irreparable splinter.

I’ll keep posting more links below, but here are few for starters:

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City_Of_Champyinz's picture

Local Bitcoins really suck, just an FYI...

DontGive's picture

Everyone knows Dogecoin won the war.

eforce's picture

BTC = Run by fascists.

BTU = Populist uprising.

remain calm's picture

Only one gold 

SymbolAu Atomic mass196.96657 u ± 0.000004 u Atomic number79 Melting point1,948°F (1,064°C)

 

 

Boiling point4,892°F (2,700°C)
ebworthen's picture

Yes, no ether forks in the Au chain.

Made by God, not Man.

bonderøven-farm ass's picture

Not a BTC holder, myself....

However, I would have entertained Fonestar's take on this cryptocurrency civil war taking place 

Douche McGoosh's picture
Douche McGoosh (not verified) bonderøven-farm ass Mar 19, 2017 7:45 PM

This is fonestar here...  as best as I can tell the Bitcoin devs are now acting in a malicious attempt to hinder Bitcoin.  There is no logical reason to not increase the block size at this point, when so many altcoins have done so with no problems.   fonestar supports Bitcoin unlimited and fuck these sell-out "developers"!

NoDecaf's picture

Netscape, myspace , aaand bitcoin.

BaBaBouy's picture

How Bout A New One... Fantasy Coin.

You buy one, you get 10 free...

abyssinian's picture

Already out, it's called Jos A Bank coin.  

overbet's picture

Is this why it tanked? Easy money for a hacker to short btc then take nodes offline knowing it would rattle the market.

Notveryamused's picture

Nobody supports BTU as observed by the market reaction at every stage it becomes more of a reality. (It's already also had a major bug) By contrast BTC was hitting all time highs while Segwit, (the more cautious upgrade proposed by Bitcoin Core) had more mining support.
Also ZH had an article Friday that postulated ETH rise was a key reason for BTC decline. I explained it was this not ETH and that DASH was a better hedge. You would have done very well this weekend if you understood that.

stacking12321's picture

don't be a DIMWIT!

instead, support SEGWIT!

Notveryamused's picture

A survey of BTC companies also shows Bitcoin Unlimited has no support. The joint exchange reaction to treat it as a new altcoin shows it has no support. It has no support from the market either as demonstrated by price action. Hopefully the miners will see how much Bitcoin Unlimited is costing them and the incentives behind BTC will help them make the correct decision. (The only reason they don't support Segwit is that the Miners fees will be reduced, but hopefully they will rapidly realise they will lose far more income by supporting Bitcoin Unlimited as the price suffers.)

Segwit is the more cautious upgrade that had the support of more hashpower than Bitcoin Unlimited until 11th March. (When BTC price plataeud and then declined - most especially this weekend when the joint exchange announcement made it a likely reality) It is more of a temporary solution, but has been thoroughly tested and has the support of the market & most major players excl. miners who should fall into line soon however.

rubiconsolutions's picture

"You buy one, you get 10 free..."

 

Fractional reserve bitcoin? Fractcoin!

SafelyGraze's picture

paw-paw recommends using fraudCoin for digital transactions.

there is no reason to be concerned about some future revelation about fraudCoin being fraudulent because fraudCoin was *founded* on the *principle* of fraud.

it has been inoculated. 

it has been pre-forked into numerous products fraudCoin-002, fraudCoint-003, etc., so there is no reason to fear the fork.

that paw-paw!

 

SILVERGEDDON's picture

Douche - you are a pale imitator. 

Fonestar would kick you in the nuts so hard you would be gargling them every time you spoke thereafter for trying to take on his persona.  

Fonestar was a brilliant kind of dickhead - you are just a nasty little millenial troll jerk off by comparison.

No Decaf - you forgot Infospace, and Real Networks.  

stacking12321's picture

silvergeddon, you are a day late and a bitcoin short.

douche is fonestar.

CPL's picture

And gold and silver and oil and heart medication.

EHM's picture

First isn't always best. How many computer companies came before Apple?

any_mouse's picture

Are you implying Apple is the best of all computer companies?

ReasonForLife's picture

Bitcoins are a damn trap! 

1. First they came for your silver and gold and replaced it with paper dollars and basemetals (copper, nickel, zinc, etc.).

2. Then they came for your paper and base metals and replaced them with plastic cards.

3. Then they came for your plastic cards and replaced them with digital wallets.

Does it not seem strange that you have given up everything of any value in exchange for virtual money in a computer?  It reminds me of video games where you build a whole city or fight great wars to defend it, only to have your computer crash on you and find yourself sitting in your underwear at 3am, hungry and exhausted with nothing to show for it.  This is what you will get with bitcoin.  You want virtual money?  Then be ready to live in a virtual house and eat virtual food but with real head aches. 

stacking12321's picture

well, gollldurn, i can't figure out these newfangled computer doohickeys, better stick to my hooch and my shotgun, i tell ya whut.

CPL's picture

Almost like everyone was taking all the value out of a system then replacing it all which would erase any evidence that bipeds ever existed?  Like it was a deep understanding of those that are sapient are going to watch the passing of yet another cycle of time just before all things implode on themselves?

Naw, couldn't be anything like that.  Wish you all well in your future efforts.  Sucks that I didn't get to finish that math but oh well, it's just going to get a little soon next time.  Everybody ready for rinse cycle, going wash whites seperatly this time.  Extra bleach and soap for the dirty ones.  Lulz

Nobodys Home's picture

Whichever side he would be taking...you know he'd hammer it hard all day!

Douche McGoosh's picture
Douche McGoosh (not verified) Nobodys Home Mar 19, 2017 7:48 PM

Correct I am still pumping Bitcoin hard.

SILVERGEDDON's picture

Douchie, my boy, y'all are dreaming. 

You may be pumping the neighborhood dog real hard.

But - as a Bitcoin pimp - the Shepwave prophet, and the 7k a month asshole rental agency got more spark than you do.

Fuck me running, even MDB and The Accredited Times look runaway wildly successful by comparison.  

HungryPorkChop's picture

The Alt Coins are the ones worth following.  Bitcoin could go to $400 or $3,000 in the next 6 months.  Some of these Alt Coins could go from $1 to $50..  Dash, ETH or Zcash could take the lead in the not too distant future.  All of these coins vary from $30 to $100.  The crypto warz are hot right now!  The winners will be worth a lot of money and the losers will be worth pennies.

CJgipper's picture

Comparing altcoins to bit coin is like comparing penny stocks to do chemical or oil options to physical gold.

CJgipper's picture

Comparing altcoins to bit coin is like comparing penny stocks to dow chemical or oil options to physical gold.

JuliaS's picture

Everyone knows Fonestar is dead. He got caved-in in a bitcoin mining accident.

Douche McGoosh's picture
Douche McGoosh (not verified) ebworthen Mar 19, 2017 7:40 PM

Buy Bitcoin!  Last chance for 3 digit pull-back BTC!

https://localbitcoins.com

manofthenorth's picture

When they start making them out of Roentgenium I will sell all my lesser noble metals and go all in.


SILVERGEDDON's picture

The Chinks are gonna stick a fork in Bitcoin, and fry it on the hibachi of life. 

stacking12321's picture

chinks is a word that a lowlife uses to refer to chinese.

hibachi is a japanese invention.

i know you're not very bright, but try and keep up, eh?

SILVERGEDDON's picture

I'm a world traveler, what can I say.

Chinks are chinks.

Hibachi's are hibachi's.

Fhonestar imitators are dick heads.

Bitcoin pimps are tools for the POTB to use promoting the danger and excitement of an outlaw bullshit digital control mechanism currency system.

I think I am bright enough to figure a few things out.

Now run along, and collect your 33 pieces of shitcoin earned by betraying your fellow man to your overlords.  

Stinkytofu's picture

dude, the "chinks" use chopsticks.

and deep-fry stuff in the gutter-oil of life.

Justin Case's picture

It's a tangible asset that can be physically held in a safe place and a history of never failing to perfom as a settlement of account. Banks store it at great costs to security because it is an asset that appreciates in value.

Teja's picture

Only one gold... almost. There are lots of forks, aka isotopes, but none of them worked out - they are all unstable, with the most stable, 195Au, having a half-life of 186 days. 197Au is the only stable one.

So, in a way compareable to the alt-coin world....  that should teach something to the BTU forkers!

38BWD22's picture

 

 

Bitcoin has a big problem, the major players (miners and lead developers) cannot seem to agree on a solution to the scaling problem.  This, as well as what the author discussed, is putting BTC's future in some peril.

All the Bitcoin Bitchez ought to finally grow-up and solve this.  Maybe lock them all up like they do the Cardinals at a Conclave.

 

Nobodys Home's picture

They could burn fiat to show they made a decision.

mkkby's picture

Laugh of the decade...  So they will print these crypto bullshit digits like we always knew they would.  Keep piling in, suckers.  You are the same fuck tards who get scammed EVERY DAMN TIME.

Tulip bulbs, beany babies, baseball cards and now computer digits.  Air would be worth more.

bluskyes's picture

Whats funny to me, is that banks take 30 days to fully clear a cheque through the BIS. How does that compare to btc?

DaveA's picture

That's because there is no solution to the scaling problem. In any network where all nodes must be appraised of what all other nodes are doing, traffic grows with the *square* of the number of nodes!

Of course, every user doesn't need his own node; Paypal and Visa serve millions of customers from a single node. But Bitcoin isn't Bitcoin if you have to ask someone else how much money you have and trust that their answer is true.

And if one of the accounts you query has been flagged for illegal activity, you could be in big trouble. When each Bitcoin node requires a whole room full of servers in a place with excellent Internet connectivity, they have to do whatever the government tells them to do, at their own expense.

kochevnik's picture

P2P sharing protocol like bittorrent should ease the quadratic problem

hmmmstrange's picture

Bitcoin traffic does not square with the nodes. It is a linear relationship. Each node is only connected to a small amount of nodes. ie 100 other nodes. This does not change if there are only 100 nodes total or a million nodes. Full propagation of transactions is a matter of seconds and will always be seconds.

DaveA's picture

Full propagation will always be a matter of seconds as long as you limit the network to seven transactions per second. (a DoS attack showed that the actual limit is 3-4)

The problem with that is that, as the network grows, users demand far more than seven transactions per second. To fit within the block size limit, miners cherry-pick the transactions offering the highest fees, and it suddenly gets arbitrarily, unpredictably expensive to move Bitcoins around.