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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.

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.

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.

Images from 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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Analysis

Bitcoin Cash Continues To Drop Ahead Of The Hard Fork

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The past few months have been really quiet in the crypto world.  Traders are used to dealing with big stories and big drama.  And while there hasn’t been much drama over the past few months, that’s all about to change.  Bitcoin Cash (BCH) has had a crazy 30 days of trading ahead of its scheduled hard fork on November 15.

For a while, it appeared that BCH would be trading near a high as the fork commenced.  BCH had a strong rally for about a week starting on November 1.  The price soared by more than 50% as it reached its high of approximately $637.  But over the past week, the price has been tanking and doesn’t show any signs of recovering.  Since November 7, BCH has dropped in value by more than 20%.

Why Is Bitcoin Cash Falling Ahead of the Fork?

There are two possible explanations for why Bitcoin Cash is dropping ahead of the scheduled hard fork.  One reason is profit taking.  Although a 50% return wouldn’t have meant much in 2017, it certainly is a lot in 2018.  However, a second and potentially more troubling reason is the conflict between Bitcoin Cash SV and Bitcoin Cash ABC.

Craig Wright, an Australian computer scientist and the biggest proponent of Bitcoin Cash SV (BCHSV), appears to be at war with Roger Ver, the most famous name behind Bitcoin Cash ABC (BCHABC).  Wright was in the news recently after proclaiming to be Satoshi Nakamoto, the founding father of Bitcoin (BTC).

As of this writing, BCHABC is trading at $420 while BCHSV is trading at $118.  According to Coin Dance, data shows that a majority of hash power favors SV.  On the other hand, there are significantly more BCHABC nodes running on the Bitcoin Cash network than there are BCHSV nodes.  Although it’s interesting to look at this data, it’s quite simply impossible to determine what this means as far as which network will come out victorious.  Creating a BTC node is relatively inexpensive so a user could start several of them for under $1,000.  And while the hash rate is important for demonstrating PoW (proof-of-work), it’s meaningless if exchanges don’t accept the coin.

Bitfinex Support

On November 12, Bitfinex announced support for the Bitcoin Cash hard fork.  On the exchange’s twitter handle, they tweeted, “We are happy to provide full support for the upcoming Bitcoin Cash hard fork.”  While the support is certainly helpful for traders, Bitfinex wouldn’t commit to choosing a side.  Instead, the exchange said, “At the time of writing, we do not believe that there is sufficient consensus to identify a clear winner in the Bitcoin Cash hard fork.”  Bitfinex expects to release an additional statement on November 16.  Traders should certainly pay attention to that as it could be material.

Final Thoughts

There is an incredible amount of information to digest regarding the hard fork.  As of this writing, it’s unclear which side will prevail as both certainly have their positives and negatives.  Given the recent slide of Bitcoin Cash, BCH holders should certainly be paying very close attention as the hard fork nears.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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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“The Core of Any Blockchain Project is Decentralization” – Jack Zhang, Lightning Bitcoin

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Lightning Bitcoin is a fork of the ‘first-crypto-currency’ Bitcoin about which we decided to take the opportunity recently to speak to advisor Jack Zhang (AKA DianfuDatou / 点付大头 – known best as a Founder of Chainfunder and DAF).

Discussion topics include: what makes this project unique, as well as how you shouldn’t get it confused is not to be confused with the Lightning Network upgrade which is being applied to the original ‘Bitcoin’.

Who is Jack Zhang

Jack Zhang (AKA DianfuDatou / 点付大头) is a Chinese investor, business leader, and entrepreneur whose “portfolio includes XRP, XEM, IOTA, NEO, EOS, TEZOS, VEN”.

Zhang proudly describes himself as “one of the leading advocators of Ripple in China” having “translated Ripple into Chinese as ‘ruibobi’” – as well as the co-founder of NEO. Please note that most sources ascribe this latter achievement regarding NEO to an ‘Erik Zhang’ and so this claim requires further confirmation – however this writer sees no reason for him to lie in this respect.

He claims that his first experience with cryptocurrency was in 2011, when he entered the industry himself having previously worked as an investment banker at companies such as Zhejiang investment bank.

“I bought more than 10 thousand bitcoins at the price of 5 dollars and sold all of them out at the price of 7 dollars. At that time, I remember how I was reading posts on Bitcointalk about blockchain for several months and got fascinated by the genius design of the technology.”

Zhang says that the Lightning Bitcoin team members “come from a diverse cultural background, including China, the United States, Canada, the UK, Russia, Germany, and India.” And that:

“Currently Lightning Bitcoin has four core developers (listed on the website) with a team of 6 specialists. Eason Zhao is a CTO and H.H.Wang is a leading developer.

“Lightning Bitcoin also has an operational team of 8 outstanding and hardworking people managed by Wasley together with a community manager James Vuitton… We have independent leaders for each directions of the business;”

What is Lightning Bitcoin?

According to Zhang, Lightning Bitcoin is “a coin that takes the best from existing blockchain titans and adds advanced consensus mechanism.”

“Lightning Bitcoin forked from Bitcoin blockchain at block height 499,999… Lightning Bitcoin (LBTC) is a fully decentralized Internet-of-value protocol for global payments.

“The specific applications include peer-to-peer transactions and exchange platforms. Any users that operate on the LBTC protocol can enjoy instant, secure and nearly free global financial transactions of any size.”

Lightning Bitcoin is far from the first (nor will it be the last) fork from Bitcoin. A number of observers have claimed that the correlation between new forks and over inflation of Bitcoin. Jack Zhang however sees it as follows…

“Back in 2017, Bitcoin blockchain started to face network congestions, and a lot of other problems, that is one of the reasons why there were so many hard forks popping up. However, all of them changed either size or difficulty adjustment, what in my opinion did not improve the situation. That is a consensus that makes the difference. Pow and PoS are easily centralized, while DPoS represents true decentralization. Moreover, DPoS has the benefit of high efficiency, with little resource consumption.”

This mechanism utilises the relatively young Distributed Proof of Stake (DPoS) protocol which this writer has written about in a recent article, despite its basis upon the Proof of Work (PoW)-based ‘Bitcoin’.

Zhang states that Distributed Proof of Stake “allows separation of the voting power and block production, with no risks of a hard fork.” In fact, the aftermath of the announcement of DPoS adoption coincided with the company taking on another of its advisors “Stan Larimer a founding partner of Bitshares… we found mutual interests, as a result Stan joined Lightning Bitcoin advisory board.”

“Lightning Bitcoin uses DPoS, with the forging interval of 3 seconds, and the block size of 2M. We have achieved the TPS of thousands of transactions.

“Anyone can use LBTC, without censorship. The transaction fees are charged only for preventing network security issues, like DDoS attacks. It is not an off-chain solution on top of the Bitcoin blockchain as Lightning Network. I personally believe that Lightning Network will face the problem of centralization eventually.”

Furthermore,

“Lightning Bitcoin’s on-chain governance system enables LBTC holders to vote for the blockchain improvement proposals and the delegates who maintain the network as Lightning Nodes. It solves the problems of centralization of bitcoin by incorporating all participants in the Lightning Bitcoin ecosystem into the decision-making process.”

Lightning Bitcoin vs Lightning Network

Due to the similarities in naming, it seems natural that there may be a little confusion on behalf of the public and crypto-investment community with regards to the differences between ‘Lightning Bitcoin’ and ‘Lightning Network’.

“There is some confusion, you are correct.

When Lightning Bitcoin forked in December 2017, for Lightning Network it was still unclear when it is going to be launched, since it was still at the internal testing stage; only after four months later, in March 2018 when Lightning Network released its beta, both projects started to be confused by users in some countries.”

This, according to Zhang, is actually a problem more specific / limited to region,

“In other countries, like China, lightning network is not that well-known, as well as it has different Chinese name, that gives us more room for the development in Asia.”

Present and Future of LBTC

“Currently, Lightning Bitcoin network is stable, we constantly improving its functions and adding more products.

“The next big step for LBTC that we are working on right now is the development of on-chain governance, that will allow the network to self-improve and self-upgrade.

“In the future, stable upgrades of Lightning Bitcoin network in combination with chain governance, and decentralized transactions will allow cross-chain flashovers and smart contracts… the exploration of the on-chain governance model will become one of the most important tasks in the current stage of LBTC.”

Zhang continues to discuss the future for the coin in-detail as well, including that:

“In short, after complete integration of on-chain governance, next milestone is the development of new decentralized exchange. It will be an important component of the LBTC payment function.

“This exchange will have both basic functionality such as flashovers function of the gateway, as well as a system to guarantee the ease of cross-chain operations. Additionally, it will have the function of early crowdfunding of project under the necessary supervision.”

Finally,

“After implementing and perfecting the decentralized exchange, the development of intelligent contracts based on the UTXO model will be carried out, and a high-concurrence-based public chain ecosystem will be established to guide the flow of DAPP traffic.”

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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Encrypgen Offers A Low Risk, High Reward Opportunity

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Since the start of the year, crypto valuations have been collapsing faster than Kevin Spacey’s career.  For investors who entered the market a few years ago, it’s been painful but not deadly.  For those who entered the market at or near the highs, this bear market may have turned them off of crypto for a very long time.  However, one bright side of the current market is that some incredible values exist.  And one day these compelling values are going to make today’s investors boatloads of money.  While I’m keeping my eyes on several tokens, perhaps the most exciting crypto company is Encrypgen (DNA).

Investors love to claim that projects they are following or investing in are the most likely to succeed.  But despite the bear market, many coin price collapses have been the fault of the companies themselves.  Many companies have missed their own deadlines and/or adjusted the roadmaps to something less ambitious.  Encrypgen has done just the opposite.  They are meeting their deadlines and are on the verge of releasing a revolutionary platform in the field of blockchain genomics.

It’s well known that small cap healthcare/biotech stocks have the potential of generating the highest returns in the equity markets.  Of course, those high returns come with astronomical risk.  So what if I told you that Encrypgen could generate those kind of returns with only a fraction of the risk that typically comes with start-up science companies?  Well, I fully expect Encrypgen to do just that.

I mentioned the risk is only a fraction typically associated with these types of companies because at some point in the 4th quarter (probably much sooner rather than later), Encrypgen will release the full working version of the Gene-Chain.  The beta version is already live.  The Gene-Chain will allow researchers and scientists to purchase data directly from consumers using Encrypgen’s token, DNA.

In addition, a buy-now feature will be implemented in the platform.  This is expected imminently.  This game-changing functionality will allow researchers to convert FIAT to DNA tokens directly on the Gene-Chain.  Researchers will receive DNA tokens and Encrypgen will receive funds that will be converted to BTC so that the company can continue to operate, expand, and enhance their product offerings.

Anther reason why I consider the risk to be much lower than usual is that the company has already done a tremendous job of navigating the complicated regulatory hurdles.  Because of the sensitive nature of the information being uploaded to the Gene-Chain (consumer genetic data), it certainly is necessary for regulation to exist.  Nevertheless, Encrypgen has already dealt with that while other competitors, such as Nebula Genomics, Shivom and LunaDNA, are significantly behind.  I always prefer to invest my hard earned money in market leaders rather than followers.  And there is no question that Encrypgen is the current leader in this space.

Investors should also take note that Encrypgen currently has an ICO cap of approximately $3.1 million.  Based on some of the other valuations I’ve seen in the crypto space, that is a significant undervaluation.  A $3.1 million valuation for a market leader in one of the fastest growing spaces that is about to release game changing technology doesn’t make much sense to me.  I am expecting a sharp and rapid increase once the Gene-Chain is being used by researchers.  The opportunity to accumulate at these prices won’t exist for much longer.

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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Hacked.com and its team members have pledged to reject any form of advertisement or sponsorships from 3rd parties. We will always be neutral and we strive towards a fully unbiased view on all topics. Whenever an author has a conflicting interest, that should be clearly stated in the post itself with a disclaimer. If you suspect that one of our team members are biased, please notify me immediately at jonas.borchgrevink(at)hacked.com.

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