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Will a Bitcoin Hard Fork Create Two Coins? – Bitcoin Unlimited Explained

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The past two weeks have been some of the most intense in bitcoin’s history as Bitcoin Core and Bitcoin Unlimited went head to head in what appears to be the last metaphorical battle.

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Bugs in Bitcoin Unlimited were irresponsibly revealed and exploited. It was then found the bug was partly due to Bitcoin Core’s use of asserts in production, an unusual practice. Some exchanges then made a fork statement which apparently bound them to Bitcoin Core. It quickly backfired as the market sent the price down by $300 due to what some saw as a statement which places the entire currency into question.

Other exchanges quickly came out to say they will follow the longest chain, but another bug was exploited which again triggered asserts, sending nodes down, to only quickly recover.

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During this period, Bitcoin Unlimited (BU) has retained around 40% hashrate share with bitcoiners now waiting for the decision of F2Pool, one of the bigger miners with some 11% network share. There are indications they may be switching, at which point Bitcoin Unlimited would have more than 50%. Once that is reached, we may see a psychological shift in attitudes as a fork moves towards becoming inevitable.

Technically, once more than 50% is reached, BU can fork at that point, but they most probably won’t because miners want to assure there will be no chain split. As such, they are likely to wait for 80% or maybe even 90% of the hashrate before they fork.

BW and Bixin (formerly known as HaoBTC) would give the network around 60%, perhaps 65%. Bitfury may be slightly swaying. If BU reaches 65%, they too may switch, giving the network 75%-80%.

Once 75%-80% is reached, miners will probably want to wait another month or two to give others a chance to upgrade. At that point, it is likely most, if not all, miners will switch, thus they’ll probably wait to reach 95%-100% network share. Once they do, they can then create a 2MB block.

Would There Be a Chain Split?

Once a 2MB block is created, the network can, technically, split into two chains. One chain can continue operating under Bitcoin Core (BC) nodes, while the main chain operates under Bitcoin Unlimited nodes.

Practically, this is very unlikely for many reasons. Firstly, if BU nears 70%, Bitfury, which has only 10% network share, would most probably switch. It is highly likely other miners would too. The Bitcoin Core chain would have an insignificant amount of hashpower which means their transactions would take days to confirm with ordinary transaction times not returning for months.

To make a chain split practical, BC may change proof of work. This, in effect, prevents current hashrate from mining BC coins, but only in theory. Bitcoin miners tend to provide hashrate to other coins too, thus have plenty of GPUs which would allow them to mine BC coins if they wished.

Matters may get far more complicated. Firstly, we have to consider whether the threat to change proof of work (PoW) is a bluff. That is because undertaking such action automatically places the Bitcoin Core coin (BCC) at a disadvantage. The coin is simply not secure, nor, many would argue, is it conceptually bitcoin because the change of proof of work where miners do not objectively act maliciously fully undermines the entire purpose of proof of work.

By changing proof of work, BCC would be conceding and would become a minority coin. They would further lose Bitfury and BTCC, isolating them considerably. Furthermore, they would probably lose support among at least some of their base who may see a PoW fork as going too far.

As such, it makes more logical sense to see a PoW fork threat as a bluff, but BC has two considerable advantages. Firstly, bitcoin.org, bitcointalk and r/bitcoin strongly support BC. If there is a split, these three media outlets would probably call BCC as bitcoin, regardless of its hashrate or price.

This would only serve to cause confusion. Moreover, if the market values BCC considerably lower, say $50, due to its low security as well as high fees plus transaction delays, while the Bitcoin Unlimited coin is valued at $800-$900, it would be a significant humiliation to Bitcoin Core which may find itself with a barely used chain.

Once a fork seems inevitable, they may therefore choose to bite their time instead of betting it all on red. A further consideration for Bitcoin Core is a miner’s statement that they will make an inoperational minority chain. The reason is probably to avoid confusion.

A more effective advantage Bitcoin Core may have is the potential to find bugs in Bitcoin Unlimited. This may serve to change attitudes towards the client and, if successful, may avoid a chain split, so retaining Bitcoin Core and its 1MB.

However, Bitcoin Unlimited has been attracting many developers and will probably tighten up its review procedures, therefore it is not clear whether BC can exploit any other bug besides the asserts it has already exploited.

A chain split, therefore, appears unlikely. It is more probable some Bitcoin Core developers may move to litecoin or another altcoin which may integrate segregated witnesses (segwit), but nothing can be said with confidence as a decision in such a decentralized way has never been made before.

What Happens if There is a Chain Split?

If a chain-split does occur, there would be two networks with their own chains, nodes, miners, and coins, no different than an altcoin, but with one significant differentiator. A bitcoin chain split would give the same amount of bitcoins to current holders on both chains.

Currently, just over 16 million bitcoins have been mined. In the event of a chain split, there would be 16 million BCC and 16 million BTU. Once both coins are listed on exchanges, there would probably be a great trading frenzy as speculators and ideologically motivated holders place their bets.

During this period, volatility is expected to be greater than ever. Whoever is not a professional trader will probably want to stay out and wait for the waters to calm. Common wisdom says diversification is very useful and highly advised for investors. Eth would probably be a good hedge.

After about one or two weeks, perhaps a month, either BCC or BTU will probably be judged by the market as having greater value. Whichever coin so does would probably be called bitcoin. The fixed amount of 21 million bitcoins, therefore, would probably remain as it is highly likely only one coin will have significant value.

As this event in such a decentralized way has not happened before, the above is necessarily speculative. It may well be the case that both coins are valued near the same, but that appears unlikely.

Non-scientific, but perhaps indicative, polls consistently tend to give bigger blocks around 80% approval over the past two years. As such, the coin value, after the trading frenzy, would probably initially settle on an 80/20 split, with the 20% coin gradually losing share.

The Ethereum Example

Ethereum is the only significant example of what may occur if both coins are listed. The combined value of both coins was initially greater than before the split as the trading opportunity attracted value from other coins. After one week of trading frenzy, eth settled at around 80% of the value with ETC settling at around 20%.

ETC then gradually began to lose share, first to 10% and now to a very insignificant amount, but there are considerable differences between eth and btc. Ethereum developers unanimously stood behind eth, even those who disagreed with the fork decision. All eth projects stood with eth, none moving to ETC.

In Bitcoin, developers are split with some, like Gavin Andresen and Jeff Garzik, supporting bigger blocks and BU, while others support BC. Most businesses tend to like bigger blocks, but they have not made any statement regarding BU. Some businesses will probably support BC.

Moreover, ethereum’s communication channels stood in a united front behind eth. In bitcoin, they are currently split and if there are two coins they would probably remain so split. The eth example, therefore, does not easily apply, but it does show that a split can be beneficial in the longer term despite potential confusion as eth has increased to around $50 after reaching a bottom of $5.

What Are the Chances of a Fork?

This is a difficult question to answer because it is necessarily speculative. Currently, I would say the chances remain slim for one main reason. A new pool has suddenly gained considerable share of the network, rising to 8% in just one week.

Little is known about 1Hash, including where their hash came from in such a quick time, but they are like F2Pool. That is, they have no hashrate of their own, simply facilitating the combination of hashrate owned by other small miners.

It is not yet fully confirmed, but there are indications they may be against BU. In a very short interview with Hacked, 1Hash’s owner said “we support the dilatation, but do not support the split.”

I asked if the pool will signal for segwit or BU, but received no further response. If they are indeed against Bitcoin Unlimited, then the client’s hashrate might stall around 60-65% with a fork appearing unlikely before winter or maybe next year.

Capacity, however, is currently a very big problem as fees have been increasing. With segwit seemingly rejected, some of the miners that currently signal segwit might switch. With BU having 60-65%, it would be far too tempting for them not to. As such, there may be a fork as soon as this summer.

It is highly unlikely a fork would occur during this spring, if one happens at all. I’d give it a 30% chance for summer and 50% chance for autumn/winter. That is based on current information, matters do move fast in this space and the behavior of eth would be of particular relevance.

The currency has plans for unlimited scalability, therefore it has attracted the attention of many big block supporters. Its market cap is now around 1/3 of bitcoin’s, with its transaction volumes nearing half of bitcoin’s.

If eth continues to advance, there would be immense pressure on miners to fork so as to increase capacity because they would see value leaving the network. Many have already left and not returned. They used to be strong cheerleaders of bitcoin, now they cheerlead Ethereum.

In my personal view, a fork by summer might halt what is now more than a drip drip, but autumn or winter might be too late depending on how things develop in eth land.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Crypto Capitulation Is Upon Us

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Capitulation: kuh-pich-uh-LEY-shuhn (noun) the action of surrendering or ceasing to resist.

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From their December peak, cryptocurrency assets have given back over $400 billion. This amounts to more than the GDP of many countries.  If this were values lost in the stock market whose worth is in the trillions, it would be called a minor correction. In crypto terms there is only one word to describe the carnage: capitulation.

As painful as it is, the point to be made here is the capitulation is a good thing.  Read on and I will share some thoughts for you to consider.

Mass Media Mania

First let’s take a look at some of the news that is causing such despair. Most recently the selling mania has been in response first to Facebook and more recently to Google.  Both of these mass social media giants have ban cryptocurrency advertising. Read closely and you won’t be shocked to realize that the target of their ire are the many ICOs.

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The problem is not that Facebook and Google are the only advertising platforms.  The problem is that they are considered mainstream media and without these two, the trend of cryptocurrencies gaining legitimacy is delayed.  That is right, I said delayed not blocked or prevented.

The World Has Changed

Five years ago, when bitcoin was unknown to most people, this might have been a fatal move. Today is a different story. I recently traveled to a remote mountain town in the interior of Mexico.  Everyone I met had heard about Bitcoin and eyes lit up with excitement when I ask if I could pay for lunch with bitcoin.  

Today are dozens of websites dedicated to cryptocurrencies, either holding them, exchanging them or just writing about them.  Probably the most effective advertising remains on Google, it is called Google Search and it is free.

If someone wants to learn about owning bitcoin or any other currency, there is a ton of educational information.

Of course it would be far better all around if Mark Zuckerberg and Eric Schmidt had taken a different approach such as banning only advertisements for ICOs, but that didn’t happen so supporters of crypto aren’t comforted in their beliefs that bitcoin is going mainstream in 2018.

The Flipside Is Being Ignored

Every argument has a flip side.  If the removal of ads contributes to cleaning up ICO scams, that is a good thing.  We can all agree on that point. And let’s be honest there is more than one problem the crypto community needs to clean up.

This adds to the ongoing regulatory news including March 7th ruling in US Federal District Court that cryptocurrencies are commodities.  As such they can be regulated by the Commodity Futures Trading Commission (CTFC).

On the same day the Securities & Exchange Commission issued the following order:

“If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration,” the commission said in its “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets.”

Not All Regulation Is Inherently Bad

The mere hint of added government regulation typically sends stock market investors heading for the exits and the same holds for investors in crypto.  But this raises the question, is some regulation of crypto a good thing?

If we examine the full spectrum of regulation to this point on a global scale there is one common target most everywhere.  That is the practice of exchanges. So far there has been little or not regulation, threatened or enacted, to protect investors from loss of funds due to security breaches.  

The question that needs to be ask is this.  Will SEC regulation result in better pricing and lower trading costs; if So, then this would provide a desirable outcome.  It is understandable if you laugh at the prospect of any government regulation having a beneficial outcome, but if you look at past SEC practices, you would come away with different conclusion.

So when the next regulation catches the headlines will it be to ban the existence of bitcoin, Ethereum, Ripple, Litecoin and others or to protect the investor from scams and excess costs?

Capitulation Is A Good Sign

Over the course of a pretty long investment experience, I have witnessed true misery on more than one occasion.  The pain is unbelievable, there is no perspective on the future and all you want is to take action to end the misery.  That is when you know the worst is happening and nothing is ever going to make it better. That is when major stock market bottoms are formed. It surely is painful these days for crypto investors. This is a good sign.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 75 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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What’s Behind Cardano’s Rising Popularity in South Korea?

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Cardano, better known as ADA in South Korea, pronounced as “aeda” in the local market, is growing at an exponential rate due to UpBit.

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UpBit, South Korea’s second largest cryptocurrency exchange behind Bithumb, is operated by Dunamu, a subsidiary company of Kakao, the operating company of KakaoTalk and KakaoPay. The two mobile applications, KakaoTalk and KakaoPay, have a market penetration rate of over 90 percent in their respective markets–financial technology (fintech) and messaging.

Although UpBit remains as the only cryptocurrency exchange that has integrated Cardano within the local South Korean cryptocurrency exchange market as of date, the popularity of Cardano on UpBit is increasing rapidly. According to CoinMarketCap, 75 percent of Cardano’s daily trading volume is processed in South Korea, by UpBit.

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Within its debut month, more than 3 million South Korean users signed up to use KakaoPay, the country’s most widely utilized fintech app. KakaoPay operates as a mobile bank, allowing users to send and receive money, obtain loans, and conduct financial activities. KakaoPay supports UpBit because a subsidiary company of Kakao in Dunamu operates UpBit.

Given that Cardano is one of the most popular cryptocurrencies on UpBit in terms of daily trading volume, naturally, as general consumers in the traditional finance market using KakaoTalk and KakaoPay move to the cryptocurrency market, the first few cryptocurrencies they are introduced to are bitcoin, Ethereum, and Cardano.

Cardano is also receiving significantly more mainstream and local media coverage than other alternative cryptocurrencies, specifically because the South Korean media has portrayed Cardano as a direct competition to Ethereum. Because Cardano is a smart contracts protocol, it is structurally similar to Ethereum.

The two key differences between Cardano and Ethereum are that Cardano uses a proof-of-stake (PoS) consensus algorithm and it also has two layers that are used for smart contracts processing and payment settlement.

In South Korea, cryptocurrency mania has swept across most major industries. 5 out of 10 people on the streets, in subways, buses, and cafes talk about bitcoin, cryptocurrency, and blockchain technology on a regular basis. As such, the majority of investors are more technical than other regions.

Most investors of Ethereum in South Korea understand that the Ethereum Foundation and its open-source development team has been planning a PoS update via Casper. When Cardano debuted with a PoS protocol, it led South Korean investors to believe Cardano is a more innovative platform and has a technical edge over Ethereum.

January 31

For cryptocurrencies with strong followers in the South Korean market, January 31 is an important date to keep track. On January 31, local cryptocurrency exchanges are expected to open account registrations to new users and six major local banks are set to provide banking services to cryptocurrency exchanges.

Consequently, on January 31, it is likely that a massive amount of Korean won will flow into the local cryptocurrency exchange market. The recent cryptocurrency exchange ban fiasco, which turned out to be false, further increased the presence and popularity of cryptocurrencies in South Korea.

Cryptocurrencies like Cardano, EOS, Qtum, and Ethereum that have strong bases in South Korea will likely increase in value throughout late January and early February.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.4 stars on average, based on 3 rated postsJoseph Young is a finance and tech journalist based in Hong Kong. He has worked with leading media and news agencies in the technology and finance industries, offering exclusive content, interviews, insights and analysis of cryptocurrencies, innovative and futuristic technologies.




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Fidelity Investments is Mining Cryptocurrency

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Fidelity Investments is a multi-billion dollar brokerage  that just so happens to be mining cryptocurrency. In fact, it has been at it for three years, using its own computers to harvest bitcoin and Ethereum.

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Profitable Experiment

CEO Abby Johnson recently told Fortune that its U.S.-based mining operation is “making a lot of money.” This comes despite running a relatively modest operation.

Hadley Stern, Senior VP of Fidelity Labs, described his company’s venture as an “experiment.”

The real reason we began mining, and still do, is to learn how the network works, how consensus works, how difficulty levels work,” he said in reference to the mining process.

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The key to profitability has been the dramatic rise in cryptocurrency over the past year. Bitcoin and Ethereum are the world’s No. 1 and 2 cryptocurrencies by market capitalization, and no-one else comes close.

Well Ahead of the Pack

The fact that Fidelity has been at this for three years speaks volumes about the company. Other, much bigger players are still dipping their toes in the market, but are unsure about how to proceed. Goldman Sachs is reportedly on the fence about starting a cryptocurrency trading operation, while J.P. Morgan has already begun handling customer orders for bitcoin-based instruments.

Fidelity is doing a lot more than just mining tokens. Earlier this year, it reached an agreement with Coinbase to let customers view cryptocurrency prices alongside other assets on their Fidelity homepage.

Coinbase is the world’s most funded cryptocurrency exchange with more than 7.4 million users.

Cryptocurrency Prices

The cryptocurrency market ended the week on a firm note, with bitcoin (BTC/USD) reaching a session high of $4,425.00. At press time, the index was up 1.6% at $4,368.

Ether is also trading higher against the dollar, with the ETH/USD rallying more than 3% to $305.

Ripple (XRP) lost momentum on Friday, but still managed a weekly gain of 21%.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 410 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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