Ethereum Classic Fork
One of the most illustrative forks of a crypto currency happened in 2016. A bug in the well known and widely used Ethereum wallet was exploited and about 12 million Ether (then $30 million) was taken.
After patching the bug, most of the community decided to do a hardfork to “reset” the blockchain back to before the exploit occurred. They essential went back in time and started working again from the ledger as it existed at a previous moment in time.
About 15% of the community seemed to believe that the immutability of the blockchain must be a foundational principle, and that undoing transactions manually, even criminal ones, was a slippery slope.
Thus emerged Ethereum Classic.
The take away is the extraordinarily versatility of the open source, crypto community. We are not a stationary target. If the above is possible, then clearly, there’s little reason to worry about the NSA finding some critical vulnerability, or quantum computing breaking Bitcoin’s security. (Btw, there are already currencies claiming to be quantum computing-proof.)
Mining is too hard!
Here’s a funny fork story. Though technically it may not be considered a fork since only one branch continued. Two coins, Feather Coin and Terra Coin ran into a “difficulty” problem.
“Difficulty” is a value that gets adjusted periodically to account for the number of computers (ie miners) supporting a particular crypto currency. The point is to keep adding blocks to the block chain at a more-or-less predictable rate. When there are lots of miners, you need a high difficulty. When there are few miners, you need a low difficulty.
Anyway, for both Feather Coin and Terra Coin (separate incidents), the economics of mining and the volatile values of the coins led to lots of miners joining them. So the difficulty went up to compensate. And then prices dropped, and the miners fled so fast that the coin got stuck. Difficulty was so high that the next block could not be mined in any reasonable amount of time.
In both cases, the communities forked the coins and manually resent the difficulty.
Again, the lesson is that we are not a stationary target.
The First Bitcoin Fork
Sure, the smaller players like Terra and Feather, and even Ether can fork around all they want, but Bitcoin was (and probably still is) in another league.
So when Bitcoin forked in July for the first time, creating Bitcoin Cash, it was big news.
I think many people were interpreting the fork, and the debate that led up to it as evidence of Bitcoin’s disintegration. They were wrong. It is evidence of the robustness and versatility of the community.
I can’t say for certain, but it seemed to me that the successful fork stirred confidence that drove the price from about $2,200 in mid July to about $4,500 in mid August.
The Block-size debate
Bitcoin handles about 3 transactions per second. Uber 12, Facebook 60, and Visa or Master Card, close to ten thousand.
The bottle neck causes high transaction fees, and occasionally slow processing. For years, the community has been locked in a very venomous debate about increasing the size of each block, which would provide albeit temporary relief.
There were other nuances as well, but as far as I can tell, increasing the block size made for cheaper faster transactions (for now), but risked requiring even more powerful computers to host the type of full-node Bitcoin software that keeps the network robust and decentralized.
Bitcoin Cash’s primary innovation was increasing the block size. Boom, it happened.
The reason it wasn’t an even bigger deal than it turned out to be was:
1) It was a rogue effort. A very small part of the community pursued it.
2) Most of the community was awaiting the “Segwit2X” fork planned for November 16th which would double the block size.
A few days prior to that planned fork, which had about 85% support, its major advocates canceled, saying 85% wasn’t enough. That’s when the fireworks really started.
Many parts of the community were so fed up with broken promises to increase the block size, that they abandoned bitcoin, and turned to bitcoin cash. At the same time, there was a huge attack of spam transactions (which is expensive to execute) against the Bitcoin network. There was a backlog of over 150,000 transactions waiting to process.
Bitcoin accused Cash of the spam attack, of being organized by a known scam artist, of spreading fake quotes about influential people denouncing bitcoin.
The Cash community accused Bitcoin of being run by weirdos and of having a “dragon’s den” of professional trolls who do online character assassination.
It wasn’t pretty.
Bitcoin plummeted from about $7,500 to below $6000. Cash skyrocketted from about $650, touching $2,000 on some exchanges.
And it a few days, it was like nothing happened. Bitcoin recovered. Cash dropped again, though only to $1000, and since then both have made big gains, with Bitcoin setting new highs.
This is not chaos. This is robustness and versatility. I think the “store of value” aspect of money may be splitting from the “medium of exchange” aspect. More on that next newsletter.
Gold and Diamonds
Shortly after Bitcoin Cash, there was a fork by a small break away group called Bitcoin Gold.
Bitcoin Gold’s value proposition is to make mining more decentralized by using an algorithm on which computer graphics cards (GPUs) can be competitive again.
The two things I know about Bitcoin Gold:
1) There was a fake Bitcoin Gold wallet that STOLE PEOPLE’S PRIVATE KEYS. If you installed the wallet, you’d lose not only your Bitcoin Gold, but your Bitcoins too if you didn’t first move them to a different wallet (and your Bitcoin Cash too)! Apparently, they stole the equivalent of $3 Million BTC.
2) The real wallet isn’t ready yet, though you can trade Bitcoin Gold futures on some exchanges. The price is around $400.
And just today I read that there was another fork — Bitcoin Diamond. I don’t know anything about it yet. Will dig in soon.