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Bitcoin Forks are So 2017

“Let a Hundred Flowers Bloom” Mao Tse Tung 百花齐放

Well there are 20 flowers in the Bitcoin ecosystem. And over 1400 in the cryptocurrency ecosystem at present.

Salad forks, dinner forks, shrimp forks, dessert forks, tuning forks, pitchforks… so many kinds of forks..

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Image credit: Ellen Levy Finch, CC BY-SA 4.0

Why fork a new cryptocoin? One can fork for technological improvements, one can fork to make money, and one can fork for ego, for the pride of “ownership”.

There were several software forks that occurred mainly in the 2015-2016 timeframe and known as XT, Classic, and Unlimited. Including Unlimited, they have had limited impact to say the least.

But let us look at hard forks, or coin splits, that have been so prevalent since August of last year.

Technology enhancements promoted in these forks are across several main categories:

  • Bigger blocks for scaling, shorter block times
  • Off chain or side chain transactions (Segwit for signature, more generally Lightning, etc.) for scaling
  • Different hashing algorithms for easier mining
  • More anonymity, security
  • Enhanced programmability, smart contracts
  • Increased money supply

How many hard forks and coin splits has Bitcoin had so far? In total there have been 20 such forks to date.

  • August 2017 – 2
  • October – 1
  • November – 1 and Segwit2x proposed, withdrawn
  • December – 14
  • January 2018 – 2 so far

This Cambrian Explosion of bitcoin forks is in large part a result of the increased transaction costs and delayed confirmation times with original BTC, Bitcoin Core. But it is also a sign of a healthy and growing blockchain universe. If cryptocurrencies were not seeing increased success, the rate of innovation, and the number of forks, would be smaller.

Here is a list of the most significant ones, all in the second half of 2017, and with current pricing, key features, and URL:

August – Bitcoin Cash, BCH, $2413, 8 MB blocks, bitcoincash.org

October – Bitcoin Gold, BTG, $323, equihash, bitcoingold.org

November – Bitcoin Diamond, BTCD, $22, 10 times number coins , X13 hash, btcd.io

December – Super Bitcoin, SBTP, $108, lightning and zero knowledge proofs and smart contracts, supersmartbitcoin.com

If you owned bitcoin prior to block 478558, you in principle own all 20 of the forked coins, including the most valuable one Bitcoin Cash, and mostly in a one-one ratio. Putting your hands on them is trickier.

That is a question as to what support particular private wallets or public exchanges provide. There are guides on the internet and YouTube as to how to retrieve although it seems more trouble and risk than justified in most cases. (This writer has managed to get some BCH and BTG separated out, but it is a somewhat nerve-wracking experience.)

For now it seems we have reached a point of exhaustion for the principal good ideas and the newest forks are more likely to be dodgy, or frauds, or duplicating others, or of limited potential.

Here is an important consideration: while increasing the transaction rate and lowering fees will bring greater utility to users, this does not contribute to the store of value or digital gold aspect. Bitcoin, the original Bitcoin core, is most valuable today for its store of value attribute, much more so than for its medium of exchange attribute.

Now it will be a race between development teams and marketing teams to see which of these forks/coins other than BCH and maybe BTG will have relevance and value going forward, and what value any of them can sustain.

Bitcoin: Like Gold or Like a Currency?

Valuing the various bitcoin forks

Breaking News: Segwit2x fork has been postponed indefinitely

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Some say bitcoin acts more as digital gold then as a currency, more as a store of value than as a medium of exchange. It is very interesting to look at the various bitcoin forks with this question in mind.

Everything in life and in finance is a tradeoff. Gold works well as a long term store of value, but not so well as a medium of exchange. The US dollar works very well as a medium of exchange, but not well as a store of value in the long term. Even the Federal Reserve and other central banks hold gold as a reserve asset. It represents the bottom of the inverted money pyramid.

Now bitcoin is from its beginning more like gold in the sense that it is an asset with limited, predetermined supply. Dollars and other fiat currencies are debt-based since they come into existence when new loans are made, and their continual supply growth is rather assured; usually inflation occurs to varying degrees. See the Money 3.0 article for a longer discussion of this point.

Image: Silver ice cream fork, De Young Museum

There are 4 versions of bitcoin, 3 currently, and one possible fork. That was scheduled later this month as Bitcoin 2x (or B2X) a possible fork due to partial adoption of Segwit 2x, but it has now been indefinitely postponed due to lack of support.

As of today, approximate values for the 3 existing forks are:

Bitcoin BTC $7200

Bitcoin Cash BCH $630

Bitcoin Gold BTG $140

And Bitcoin 2x B2X had future values around $1600 before plunging on the announcement that it is now postponed.

All these cryptocurrencies have a supply of around 16.6 million accounting units, and all are limited to 21 million as the ultimate supply. And yet their prices are very different. Bitcoin has a first mover advantage but is that the whole story? How does one value BCH and BTG relative to BTC? In principle the various versions have both asset and currency characteristics.

Each of the alternatives to the original bitcoin is designed to facilitate faster, less expensive transactions. And this makes it more like a currency than a reserve asset.

BTC can be looked at like a large denomination bill, not as easily spent, although it is much easier to break into change than large bills are. Bitcoin Cash differs from BTC because it has a much larger blocksize, 8 MB. Bitcoin Gold differs in adopting a GPU-friendly mining algorithm, Equihash, rather than SHA-256 used by the others, which requires custom ASICs.

Bitcoin 2x adopts Segwit2x with a larger 2 MB block size.

Each of these three alternative coins is designed so that the system can process transactions more quickly and at lower cost, and so, along the spectrum of digital gold to currency, each is closer to a currency than the original BTC.

And that, somewhat counter-intuitively, is why original BTC retains a higher value.

In particular, the Bitcoin Gold is actually least like gold of all of these, since it will have the most accessible and thus fastest mining algorithm, and presumably could end up with the lowest transaction fees.

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Image credit: bitcoingold.org

The respective values of the 3 or 4 types of bitcoin reflect this view. Bitcoin is the “slowest” and has the lowest velocity (slowest turnover) and highest value. Bitcoin Gold appears to be the most rapid and with lowest transaction fees, and thus has the lowest value.

Bitcoin Cash and a possible future Bitcoin 2x are between the two extremes. Since Bitcoin Cash has much larger blocks it has substantial miner support. Bitcoin 2x is favored by the user community that wants to facilitate more efficient transactions.

If you have a gold coin and some fiat currency, which do you spend first? You bought the gold coin in expectation that it would preserve its value and increase in terms of the number of currency units per coin.

So HODL (hold on for dear life) BTC, and spend or convert BTG and BCH seems the way to go for now. As always one should monitor how the different cryptocurrencies are developing in comparison to each other, in this very dynamic and volatile marketplace.

Evolutionary Forks and Dividends

What is a fork?

It is early days in evolutionary terms for cryptocurrency. Bitcoin has not been around even a decade. Ethereum has only been here for a few years. The respective economies of these and other cryptocurrencies have been growing at triple digit percentage rates.

A given blockchain can be thought of as a continuing line of a particular species. A new blockchain, e.g. Ethereum with new attributes is a new species of cryptocurrency. A fork in a blockchain, such as the recent Bitcoin Cash, is also a new species, but perhaps one can say that it belongs to the same genus.

Mayr’s concept of species is that of representatives of the same breeding population. They are in some sense on the same continual chain.

A fork is an evolutionary branch in response to environmental pressure. The pressure arises due to the developing needs of the ecosystem for cryptocurrencies overall and for individual cryptocurrencies.

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Pressure

The pressure that gives rise to evolution in the cryptocurrency ecosystem arises from the need to scale cryptocurrency to higher transaction rates and to more diverse use cases. For example, there is the very general use case of smart contracts, that led to the creation of Ethereum.

How new currencies are created or are forked results from the technological requirements and how those are interpreted and implemented by particular members of the development community. This is a political arena since miners, developers, exchanges, merchants, and other groups have different interests.

We have just had the Bitcoin Cash fork and are now facing possible forks for Bitcoin Gold and Segwit2x (Segwit was adopted without a fork in August).

It is difficult to determine which fork or species will be the most successful in the long run; but the original or main branch can have an advantage. Overall forks can be seen as strengthening the ecosystem as a whole since total value seems to rise after forks. After the Bitcoin Cash (BCH) fork the original Bitcoin (BTC) increased in value, and one could also collect the BCH on a one per one BTC held basis as a dividend. 

More generally, this has been borne out by the continually increasing market capitalization of the set of cryptocurrencies, currently having reached around $160 billion (roughly a Buffet plus a Gates).

For investors in cryptocurrency one can view forks as special dividends. Those who held Bitcoin through the Bitcoin Cash fork received a dividend of several hundred dollars per BTC. Sometimes numbered prints or copies are valuable as well.

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Above is not our view, but that of @BitcoinWrld

What you do (hold, sell all, sell half) with your dividends is up to you and your views on individual forks; we make no recommendations here. But the dividends are there to receive, along with possible capital appreciation as the cryptocurrency economy continues to grow rapidly.

A Golden Fork

What do Bitcoin and Gold have in common? They are both assets. Both have limited supply that grows only slowly. Both can be seen as a form of money since they are stores of value and can be used as a medium of exchange. Both are liquid and divisible, although Bitcoin is much more easily divided. And both are unlike fiat money, in that they are debt-free. Both are ‘mined’, gold is physically mined, and Bitcoin is ‘mined’ via cryptographic hash algorithms (proof of work).

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But what is Bitcoin Gold? It is neither gold, nor the current Bitcoin. Rather it is a proposed fork of Bitcoin, designed to make mining easier, and accessible to more people. And it could happen very soon, just three weeks from now.

The chief backer is CEO of a Hong Kong-based company, Jack Liao, and he indicates the motivation behind Bitcoin Gold is for it to be complementary to Bitcoin and to grow the community of miners, to allow the Bitcoin ecosystem to move away from its present centralization in a few mining pools.

It is not clear how well the proposal has been developed, and how many miners, current or new, will back it. But the intent is to allow mining by GPUs, rather than the specialized ASICs highly optimized for the SHA-256 hashing used by both Bitcoin and Bitcoin Cash.

Instead it will use the Equihash algorithm, that is GPU-friendly rather than ASIC-friendly, since it demands substantial utilization of memory and memory bandwidth. This could allow for a much broader community of miners since GPUs from Nvidia and AMD are so widely deployed.

The primary cryptocurrency usage of GPUs today is for mining Ethereum. But since Ethereum is scheduled to move away from proof of work and to adopt proof of stake next year, Bitcoin Gold could be the most important new target for GPU-based mining.

The developers of Bitcoin Gold intend to remain aligned with Core and Segwit roadmaps.

Everyone holding Bitcoin, with a suitable private wallet at the beginning of August, received a ‘free’ dividend of Bitcoin Cash. The major exchanges ended up supporting access to users’ Bitcoin Cash, some sooner, others later. Now everyone holding Bitcoin with a suitable private wallet on October 25th stands to receive a free dividend of Bitcoin Gold (BTG) as well.

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