Hard Forks: Bitcoin Upgrades Harness the Free Market
MATT ODELL • LAST UPDATED: SEP 15, 2015
Editor's Note: The following analysis is theoretical because a planned hard fork of this magnitude has never occurred before in the history of Bitcoin.
The recent block size debate has brought the issue of a hard fork front and center since it will be necessary if there is change to the Bitcoin protocol to allow larger blocks. A hard fork occurs when a new version of the core Bitcoin software is no longer backwards compatible with older versions. Many in the Bitcoin community fear the uncertainty of hard forks, but in reality it is a process that will allow Bitcoin to continuously upgrade based on free market consensus. There is nothing to fear, you will not lose your bitcoin, and the market will sort itself out in time.
The result of a hard fork is two block chains growing independently of each other from the point of the fork. Essentially two independent “coins” emerge (let's call them bitcoin1 and bitcoin2), and however much bitcoin you own pre-fork will be duplicated to both bitcoin1 and bitcoin2. This is important because it means that as long as you control your own private keys, you WILL NOT lose any bitcoin during the hard fork process.
“There is nothing to fear, you will not lose your bitcoin, and the market will sort itself out in time.”
“There is nothing to fear, you will not lose your bitcoin, and the market will sort itself out in time.”
1) You own 25 bitcoin before the fork
2) Fork happens
3) You now own 25 bitcoin1 and 25 bitcoin2
When a fork happens, miners, full node operators, and Bitcoin companies will be essentially “voting” on their preference by choosing whether or not to upgrade to the new version. It is important before a hard fork that the overwhelming majority of those entities are willing to go with the upgrade, in order to make sure the process goes as smooth as possible. Gavin's proposal requires a certain percentage of all miners to be operating the new software before the fork occurs and he has implied that he is in back room talks with many of the major Bitcoin stakeholders to make sure the new software has their support. However, an overwhelming majority may not always be attainable, and in that situation both block chains will be competing for dominance.
If one block chain doesn't become the dominant one right away, the free market will ultimately step in to decide on a “winning” chain. Exchanges will begin allowing users to trade bitcoin1 for bitcoin2 and vice versa, and the free market will decide on the value of each. As it becomes clear that one of the “coins” is valued much higher than the other, stakeholders such as miners, full node operators, and Bitcoin companies will end up choosing the fork with the higher value. As more of these stakeholders choose the higher value fork, the value difference between the two forks will diverge at an increasing rate, ultimately resulting in one fork having basically no value as users rush to sell all their coins in that fork for ones in the more valuable fork. This process should happen quite quickly as it is a positive feedback loop. If you are the gambling type, the situation presents an opportunity to make a lot of money (or lose a lot on the opposite side), but if you are conservative then you can just take a wait and see approach and your bitcoin will not be at risk.
How to be prepared for the hard fork?
The most important preparation for a hard fork is to make sure you control your own private keys. With or without a hard fork, we usually recommend users control their own keys anyway, making it much more difficult for malicious companies or governments from seizing or freezing your bitcoin. Now with a potential hard fork coming it is absolutely imperative that you control your own keys. Storing your coins in a custodial wallet such as Coinbase (where you don't have control of your own private keys) will result in you being forced to follow the fork that Coinbase chooses, rather than having duplicate coins on both forked block chains. If Coinbase chooses the wrong fork, then you are out of luck, the guarantees I mentioned earlier in this piece wouldn't apply to you, and you could lose all of your money. The easiest way to control your own private keys is arguably through the use of properly generated paper wallets. We have an easy to follow beginners guide on generating cold storage paper wallets that you should follow, and store the majority of coins on those paper wallets before the hard fork occurs. By doing this, you will have complete control of both the bitcoin1 and bitcoin2 that are connected to your private keys and you won't have to depend on wallet developers to upgrade their code.
You can learn more about the block size debate here.
If you have any questions, feel free to post in the comments or to tweet at us @CoinPricesIO, or our Executive Editor @Matt_Odell or through email matt[at]coinprices[dot]io" target="_blank" rel="nofollow">matt[at]CoinPrices[dot]io
How does this hard fork business help bitcoin grow? If your caught on the wrong side, you loose everything. Wow!
Lets see, I was told that bitcoin was the currency of the future. I open a wallet on the Coinbase site, purchase bitcoins. Coinbase chooses the wrong path, now I have nothing.
Stable, valuable, reliable?
How many people have purchased bitcoins, put them in an online wallet, deposited the info someplace safe and in 2 years they see bitcoin hitting $10k, check their account and NADA? Sounds like Banking 101. Bailins, just in different form.
How is bitcoin a safe choice?
If this happens once, the public will shun bitcoin like the plague.
A leading Bitcoin developer has quit, saying that the currency is a ‘failed experiment’.
Mike Hearn, is one of the most high profile figures associated with Bitcoin. He has been a prominent member of the community in recent years, walking away from a job at Google to devote his time to its development in 2014.
However, Hearn has now made a series of damning criticisms of the project in a blog post announcing his withdrawal from the currency.
In the blog, posted on Medium, he tells Bitcoin users: “Despite knowing that Bitcoin could fail all along, the now inescapable conclusion that it has failed still saddens me greatly. The fundamentals are broken and whatever happens to the price in the short term, the long term trend should probably be downwards.
“I will no longer be taking part in Bitcoin development and have sold all my coins.”
Hearn continues: “Why has Bitcoin failed? It has failed because the community has failed. What was meant to be a new, decentralised form of money that lacked “systemically important institutions” and [was] “too big to fail” has become something even worse: a system completely controlled by just a handful of people.
“Worse still, the network is on the brink of technical collapse. The mechanisms that should have prevented this outcome have broken down, and as a result there’s no longer much reason to think Bitcoin can actually be better than the existing financial system.”
I understand he has a new employer, also in the crypto currency business ....
Reuters: " Hearn is now working for the R3CEV consortium of banks working on using the blockchain technology that underpins bitcoin in financial markets....."
Not that this means what he says regarding either Bitcoin, or his later invented competitor cryptocurrency Bitcoin XT have any less inherent problems than he says they do - now that he's moved on. But, well, you know ......
I take it from these latest set of comments on TFMR that there is some opposition to Bitcoin (given its being trash-talked by Hearn and his alter role in banking); but I wonder if it is more of a control of the rise of Bitcoin and the timing of its emergence.
Here's where I get to demonstrate my ignorance - please clue me in. I understood B. Masters and L. Summers got involved in this as directors of some companies. I understood Goldman took out a patent for something related to its version of Bitcoin. So I would guess they are on it like Donkey Kong. And we need to go to a paperless currency - so its Bit or some version of it.
I heard Clif High with his recent good track record around this area - talk about BitCoin and Silver working in tandem and then when silver / gold went up - Bitcoin would assume gold's emotive standard versus silver's and continue up outpacing the precious metals (my words or take on his comments).
Also he mentioned a Keiser video where the second half was the gent from Overstock who talked about how important or useful Bitcoin like features are to back office processing by the banks - making more profit and control over currency and other peoples money - sounds very bankish to me. https://www.youtube.com/watch?v=d8GrATmf-Mg
12:52 forward in the podcast
So the timing of a Bitcoin "rise" seems to be the issue to me - if Bitcoin can 'steal' gold's appeal in any reset or offer an alternative to slow the rise of gold - would the current result/trashing do that - adjust the timing and demand for? And AM - would that not provide a little bit of the 'down' or action required to meet the central bank cycle?
To me, so far, Bitcoin's value is a brand loyalty. Other crypto currencies have come out after and tried to compete with Bitcoin, but they were all a concept short and a week late. Real competition has not yet been launched with big money to push it. When the banks are ready, and they're getting ready, there will be wall to wall publicity both positive for the bank crypto brandname, and negative and scandalous for Bitcoin.
So here's the big question: when a really big crypto brand name is launched to take market share from Bitcoin and it's merry group of colleague brands, the new bank-crypto brand will come with associated services that can be offered by the credit card and bank branch networks. They will use logistics probably in coordination with discounts or rebates of some sort for introductory users.
What are consumers going to do? They will choose the most convenient brand that's advertised the most and go with it.
Does this mean Bitcoin will go away? No. But it will remain on the margins and it's potential to take greater crypto market share will be neutralized.
I understand this will go against the hopes of crypto investors, but when the marines are preparing to land in force down at the beach you don't look at a makeshift barricade of upturned carts and barrels backed by a group of locals and expect it to last long. Only a major popular sentiment shift against everything the banks touch followed by a worldwide boycott of those products can alter this. And I just don't see any signs of that happening (yet!).
Blythe Masters opens blockchain shop in London
The study is all being put into blockchain not bitcoin itself.....she's another one at it.
....and she's giving out favours to her ex (?) employers - really noone ever leaves though right ?
Ex-Barclays chairman takes blockchain board role
JPMorgan Chase & Co. (JPM) Investing Heavily in Blockchain, Big Data, and Robotics
They are all at it.......
have one goal , Destroy bitcoin and preferably steal something while they are at it.
and use the internet to pump their goals......and gain exposure...oh, wait a minute....lol
Sure - buy on coinbase - but then transfer to your paper wallet / brain wallet / Trezor. Never leave substantial amounts of bitcoin in an exchange - MtGox taught that lesson. Just like leaving your money in a bank in Dead Mans Gulch in 1860 - prone to robbery.
Blyth and JPM have no chance - in attacking bitcoin they merely display their ignorance of how it (the bitcoin blockchain) is constructed.
Am I sure of that? Yes.
As AM notes, when a bank comes out with a competitor, who will the public choose? The loyalists will stay the course, but what will the banks bring into the offing?
What will be the diff? When the bank teller tells my dad that they have a new, secure way to move funds, which way will he choose? BTW he has never heard of Bitcoin, just Mastercoin.
Honestly, I would LOVE to park a little fiat into crypto, but damn, unless your a techie staying up with the changes, you could be fooked in a nano.
Went after bitcoin in plan A Failed. Now she is going after it plan B . It must be very important to them to try to destroy or dilute its effectiveness . Considering that they have swift, there is no reason why they need a crypto for themselves.
- "park a little fiat in bitcoin".
Steps (as of 19 Jan 2016):
1) Buy some bitcoin - as an American (you) I would suggest Coinbase: https://www.coinbase.com/
2) Transfer to a paper wallet (or brain wallet): https://www.youtube.com/watch?v=I1uefzJJ6nM
It's that simple. (If you are having trouble get your grandson / great-grandson to help you)
Block size debate still raging. Forks threatening to spit the blockchain. No incentive to run a full node, hence number of nodes in decline. etc
Don't get me wrong I'm bullish on bitcoin, especially this year with supply halving coming up and stock market looking ready to crash. Bitcoin has network effect, first mover advantage, everyone has heard of it. But still ..
My hedge is DASH Dash is an 'alt' which introduces fixes to all of these bitcoin woes. A second tier of nodes called masternodes is incentivised at the protocol level. These masternodes are also useful in providing superior anonymity and instant transactions. There is a budget system also built in which allows governance. 10% of block reward is spent how voted on by the network. This is only the beginning, I recommend looking further into DASH
Heres a cool video https://www.youtube.com/watch?v=M6Sf7kcbDWk
as I see it, is that most people who sing it's praises do not understand it.
Is it 'good' ? I don't know. Is it 'bad' ? I don't know.
Do those who praise Bitcoin have a Phd in mathematics or computer science ? Have they spent an entire lifetime developing crypto software systems and crypto currencies ? Do they actually understand the equations in BC white papers ? No,most have probably read a few articles and watched a few YouTubes. That's equivalent to reading a few car enthusiast magazine articles & thinking you now know enough to design Indie 500 race cars.
And even if someone had the necessary background, I have no way of personally verifying if his assertions are true or not. I don't have the necessary background in the field.
So it all comes down to faith in the end.
Like tulip bulbs in 1600s Holland.
Of course is just my opinion.
But then so are most things. I have a modest amount of bitcoins, I also have a less modest 403b, and if you were to ask me which one was more likely to pay off in the long run, i`d say it`s 50/50. Part of the allure of bitcoin, for me at least, is remembering the early days of the internet and people saying that one day you would be able to book your own flights and holidays using it, and I also remember my friend emailing me a link to this new site..."Google", we now know where the future took them, I see bitcoin as another chance at the lottery but realize that I may lose. Just to prove a point to myself and the world at large, the only purchase I have made using bitcoin was for some toy soldier figures molded in silver, very pleasing.
Also, I can`t get my head around people saying it`s all digital etc, the dollar is just the same except that you can get a piece of paper with "dollar" printed on it, and as to the supposed anonymity, I`m sure it`s possible but with blockchain being touted as the most secure record of things imaginable, the greatest ledger ever, I see the anonymity angle being too a bit of a contradiction. Just my ramblings, you have to admit that if you own them it can be exciting, just like a lottery ticket.
The problem with BitCoin is scale. I have a piece of paper with bit coin address on it. What keeps me from spending this same bitcoin in two places at once?
The blockchain does. So this means that any vendor that takes my bitcoin must wait until the tranasction is recorded in the block chain before he can be really sure that it is now really his. This record takes 2 to 15 min. This wait to be recorded problem completely eliminates BitCoin from some class of transactions...
A lot of transactions CAN wait 10 min for a block chain verification, a lot can't I can't buy a burger if it takes 10 min for my transaction to clear. The average time varies from 6 to 13 minutes. (https://blockchain.info/charts/avg-confirmation-time)
So the obvious way to fix this is to have an intermediary or bank hold your spendable bit coin and vouch for the transaction instantly.. (IE just like a Debit card and your bank)
The problem is that if you deposit your bitcoin with some "Bank" you must trust the bank and you must have some recourse if the bank steals your bitcoins (Mt Gox anyone?). This means that both you and the bank must have some way to identify each other and a legal avenue to pursue fraud in both directions. Thus for BitCoin to work at scale one must loose the anonymity that is the number one feature of BitCoin that is touted by the true believers.
I've posted a few times about not wanting to trust Bitcoin, mainly from the view that if electricity goes away, so does Bitcoin. Technically that's true, but it's also the case with my bank. Any funds I have there surely won't be accessible either.
For those of you familiar with "V" the Guerrilla Economist, his show this past Friday was about Bitcoin. I don't know what to say about my change in attitude about Bitcoin, but listening to his show somehow managed to turn on the light bulb. Maybe I just needed to hear it explained in just the right way, or by the right person, or perhaps circumstances with the economy are set up just right for my mind to let in the Bitcoin information.
I was thinking about ANY extra Dollars I have sitting in my checking account. I'm not comfortable with that.
I'm very comfortable with my stack, and I've been buying other types of prep like shop tools, gardening supplies, energy backup, hunting equipment, some cash, etc.
I'm thinking it is just the right time for some Bitcoin. I discovered that I can get discounts when buying from Amazon. I didn't know that, and I buy a lot of things from Amazon. I finally researched Bitcoin because I'm ready to see it's benefits.
It's amazing what a closed mind can keep me from learning. What's the phrase? "When the student is ready, the teacher will appear." Well, it appears the time is right.
Having some programming experience, the blockchain concept is pretty slick.
He has language talking about Deci-bit and Milli-bit in regards to bitcoin.
This makes sense. The average person doesn't buy a ton of silver but ounces or kilos.
Ack! New wujo - BTC silver gold Crash Map outline for 2016 https://www.youtube.com/watch?v=n1bl5qaqXtI …
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