‘Hard Forks’ Will Hurt Bitcoin, Not Save It
When Bitcoin finds a fork in the road, it takes it. Having forked its blockchain in July, Bitcoin forked again on October 25, creating a coin called “Bitcoin Gold.” But its most treacherous fork is yet to come with a hard fork set for mid-November.
At risk this time is the very identity of the cryptocurrency, currently given to the blockchain called Bitcoin Core Version 14.
An agreement between miners and traders earlier this year was supposed to result in an upgrade, to Version 15. The technology is known as SegWit2x, an upgrade to the Segregated Witness technology meant to speed transaction processing by increasing the size of trading blocks to 2 Megabytes (hence the 2X).
But not everyone thinks upgrading the code base to speed transactions is a good thing. If you’re holding a lot of this cryptocurrency and speculating on its value rising, then it’s a commodity like gold. With an Oct. 27 price of $5,735 per coin, up from less than $1,000 at the start of the year, making it plentiful could mean big losses.
New York Bitcoin Agreement Collapses
Thus, the “New York Agreement” creating SegWit2x, is losing support as exchanges that previously agreed to use the new code renounce it.
Jeff Garzik of Bloq, which is developing SegWit2x, wrote recently that it’s full steam ahead for the new code. A group of Chinese cryptocurrency miners, meeting in Hong Kong, has called SegWit2 a “reckless endeavor.” See you in the trading pits.
The question now is whether the market will value the new blockchain or the old one. Given the fate of Bitcoin Gold, the most recent fork, this is in doubt.
Bitcoin Gold was created to be easier to produce, or mine, using a “proof of work” verification algorithm that ordinary folk with fast gaming processors can create. This makes it more of a currency, something those who want an alt-coin to represent value, like online gamblers, seem to like.
But decentralizing the creation of the cryptocurrency threatens the profit margins of existing miners, and the Bitcoin Gold servers quickly came under a distributed denial of service (DDOS) attack meant to take them offline. As this was written, a Bitcoin Gold coin was worth just 2% of a Bitcoin.
Cut to the Chase
Technical arguments aside, this is a dispute between those who want to keep the cryptocurrency rare and illiquid, to keep the price for it rising, and those who see it for what it was meant to be, an alternative form of currency. The traders are mainly in the U.S., the miners in China. The speculators are all over the internet.
The miners don’t like SegWit2X any more than they liked Bitcoin Cash or Bitcoin Gold. Those crypto-currencies increase the supply of Bitcoin, siphoning value away from the main blockchain. In theory that’s true, but as the debate has continued the cryptocurrency’s share of the crypto-currency market has been going up. Its blockchain currently has 56% of all crypto-currency value.
Which brings us to the key question. What will we call coins on the SegWit2X fork? Coinbase, the largest Bitcoin trading house, indicates it will initially call the fork Bitcoin2X, but also could call it Bitcoin depending on how much support it gets. If SegWit2X winds up being called anything other than Bitcoin, however, it risks suffering the fate of previous forks, which have very little value.
The fork, in other words, is not a technical argument. It’s a market argument that will determine what Bitcoin is, a speculative commodity or a true alternative currency. My guess is the fork will fail, as the cryptocurrency bubble rages on toward its inevitable bust.
by 