NYA Split and Bitcoin Gold

There is potential for two new chains forking away from the Bitcoin Blockchain in November. Why are these chains forking away from Bitcoin and what does it mean for holders of Bitcoin?

Bitcoin Gold

Bitcoin Gold is presenting itself as a benevolent hard fork. This is accurate to the extent they have never attempted to claim themselves as a replacement of Bitcoin or to call themselves the True Bitcoin. Although keeping Bitcoin in their name, and using the symbol is confusing and clearly attempting to leverage off of users’ ignorance.

fork_comparison.jpg
A Comparison of the expected chains courtesy of Bitcoin Gold’s Twitter account

Some definitions before we move on:

PoW = Proof of Work. An algorithm which defines the cryptographic hashing functions used. It also defines the rules of the network which extends to difficulty settings, time and size parameters, and supply algorithms.

SHA256 = A type of cryptographic hashing function.

Equihash = A memory intensive cryptographic hashing function.

ASIC = Application Specific Integrated Circuit. Ultra specialized SHA256 mining hardware. ASICs outcompete all other hardware by many orders of magnitude.

GPU = Graphics Processing Unit.

The BTG project is lead by Jack Liao, CEO of Hong Kong firm LighteningASIC. They produce cryptographic mining equipment.

The major difference proposed by Bitcoin Gold is to do with mining. They argue that BTC mining has become too centralized (both in terms of hardware manufacturers and large-scale mining pools). Their PoW adjustment aims to resolve this by removing ASIC mining and returning their network to GPU miners.

BTG Conclusion

Bitcoin Gold has identified a genuine weakness in the Bitcoin ecosystem. If their intentions are altruistic and they are successful in implementing the proposed PoW changes then BTG has the potential to become a viable alternative. All of these are massive IFs however. There is too much uncertainty surrounding their development, GPU manufacturing is also somewhat centralized and it is basically impossible to replicate the organic growth and decentralization that the Bitcoin network has achieved.

New York Agreement (a.k.a. Segwit2x)

Definitions:

NYA = New York Agreement. A private agreement signed by a handful of entities at the Consensus conference in May.

Segwit2x = The agreement originally proposed to activate Segwit as a compromise, contingent on a 2MB hard fork later in the year. I prefer not to use this.

The project is lead by Jeff Garzik who formerly contributed as a developer for Bitcoin.

The ONLY difference proposed with this fork is an increase in the base block size from 1MB to 2MB. It also requires nodes to update to new reference clients (this is a technical detail but it is significant in that it would remove influence from a certain set of developers known as Bitcoin Core).

NYA Conclusion

The NYA saga has been boiling over many months and perhaps even years depending on how you judge the history. I will offer my own conclusions as briefly as possible.

The NYA is a purely political schism. It has nothing to do with any technical improvement to the Blockchain or to scalability. These are false narratives put forward by the advocates of NYA. Their (false) argument is that the current base block size of 1MB is too small for Bitcoin to remain relevant as a fast and cheap payments processor. They believe that an increase to a 2MB base block size will be the solution. There are numerous papers which provide overwhelming evidence debunking the big blocker argument.

Using the name Segwit2x is also misleading since NYA signees had absolutely nothing to do with developing the Segwit code and neither did they exert any influence over its activation.

Consensus depends predominantly on users and network nodes. NYA completely ignores this. It was signed by a handful of hubristic businesses (mostly American) and mining pools (mostly Chinese). It is an attempt to unilaterally adjust the PoW algorithm to suit narrow desires which will centralize Bitcoin and remove all the benefits of trustless, censorship resistant money.

A change to the PoW algorithm which does not achieve consensus is defined as an alt-coin. Despite not having consensus the NYA camp has continuously refused to rename themselves and still try to claim that their coin will be known as BTC.

In short, NYA is an attempted corporate takeover of Bitcoin.

What Should I Do Before and After the Forks + Predictions

  1. Store all your Bitcoin in a private wallet where you control your own private keys. This means removing your coins from any custodial service such as an exchange or wallet providers like Xapo or blockchain.info wallet. If you are unsure of which wallet providers hold your private keys feel free to email me. Hardware wallets provide the best security and control. In terms of mobile wallets, bread is a good options which give the user control of their private keys.
  2. Avoid transacting in the weeks following the forks. There is still uncertainty surrounding the replay protection implemented by both projects. This makes it possible for a user to transact two coins at once or to spend the unintendend coin.

Following the forks you will automatically have a replicated balance of BTG coins and of 2x coins on their respective blockchains. At this point you can decide if you wish to hold these coins or to trade them for cash or some other cryptocurrency (assuming exchanges and wallets will provide functionality).

BTG has very little traction and seems to be drowning in an ocean of dis-interest and apathy. Not helping is the vague nature of the project and rumours of a pre-mine by the developers. Some exchanges don’t even seem to be aware of the project. If the fork is ignored the coin will be un-tradable and unusable making it worthless and destined for an early death.

I expect BTG to happen quietly and without incident. I assign 80% likelihood that it dies and 20% that it gets enough interest from users to pressure exchanges into listing the new coin. Value is more difficult to estimate. If BTG manages to trade around 0.01 BTC that would be a decent achievement.

2x on the other hand is rife with adversarial debate. The proponents still delusionally believe that they are “upgrading Bitcoin” while opponents dismiss it as worthless. In light of the August 1st Bitcoin Cash fork, 2x becomes even more pointless. Bitcoin Cash has a base block size of 8MB. If the debate is truly about block size then surely all of 2x’s proponents would have moved over to the Bcash blockchain?

2x could play out very similarly to Bcash. There are large forces behind the scenes who will manipulate the markets and fill twitter with misinformation and propaganda. It will certainly get listed by some exchanges, there is already a futures market listed on Bitfinex. After the initial hype (perhaps lasting 4 – 8 weeks) I expect the price to consistently fall just like Bcash.

Screenshot 2017-10-11 17.51.21.png
Bitcoin Cash Price (USD) since inception

I will be selling my 2x coin as soon as it is safe to do so. If I get anything near 0.1 BTC I will be very happy with that outcome. BCH currently trades at 0.0648 BTC 10 weeks after forking, having reached short-lived highs of ~0.2 BTC.

The Future of Bitcoin Forks

Technically, it is trivial to execute a hard fork from existing open-sourced blockchains. Any developer, anywhere in the world can execute a hard fork if he/she identifies a reason to do so. Bitcoin’s Blockchain now secures $80bn worth of value – launching your coin from this foundation offers a sizable opportunity.

The difficult part is convincing the market of the utility of your new coin and whether or not the motivations were fraudulent or altruistic in nature.

The increasing regularity of fork coins will cause confusion amongst newcomers who may not be able to distinguish which Bitcoin is the True Bitcoin. The upside is that Bitcoin proves its robustness with each fork or attack on the network, which only adds to Bitcoin’s value proposition.

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