Speaking to Moneycontrol Charles Hayter, co-founder and CEO of cryptocurrency data platform CryptoCompare, sheds light on the what Bitmain's proposed hard fork is and what it means for bitcoin, as a technology and on its price.
Just when everyone thought it was over, the bitcoin scaling debate resurfaced earlier this month when major mining firm Bitmain announced the launch of a user activated hard fork (UASF).
In May, a majority of blockchain industry bigwigs reached a consensus regarding the bitcoin scaling solution and agreed to enable the Segregated Witness (SegWit).The SegWit was supposed to be a soft fork, a temporary solution to make bitcoin's software protocol handle the growing transactions burden.
— Vinny Lingham (@VinnyLingham) June 15, 2017
In a release, Bitmain said,''The mining activity behind a UASF [user activated soft fork] chain may stop without notice, and investors who buy in the BIP148 propaganda may lose all their investment. Any exchanges that decide to support a UASF token after the forking point need to consider the stagnation risk attached to it."
What is a hard fork?A hard fork is an event where a blockchain splits into two separate ledgers, based upon a fundamental change in rules governing the software’s protocols.
The scaling debate had stalled the technology’s development and now again poses uncertainty in which direction it is headed and what impact will this new tussle have on bitcoins price.
Speaking to Moneycontrol Charles Hayter, co-founder and CEO of cryptocurrency data platform CryptoCompare sheds light on the what Bitmain's proposed hard fork is and what it means for bitcoin, as a technology and on its price.
Q. What is the user activated hard fork suggested by Bitmain and how will it impact the technological development of bitcoin?
A. The user activated hard fork is Bitmains response to the threat they saw in the upcoming user activated soft fork (UASF). Which the majority of the Bitcoin community was in favour of, as it was finally a step towards solving many of the scaling issues that has divided the Bitcoin community for years.
The UASF would, amongst other improvements, introduce SegWit (Segregated Witness), which allows more transactions to fit inside 1MB blocks and enables the implementation of the lightning network, an off chain scaling solution.
Bitmains rationale behind user activated hard fork (UAHF) is explained in their press release.
One of the main points of contention is that Bitmain would like to see bigger blocksizes as an attempt to scale on-chain. Bitmain said that they see the UASF BIP148 as a threat to the economic value of Bitcoin to users, entrepreneurs and businesses that are in the Bitcoin ecosystem.
If the UASF has support they will release privately mined blocks to trigger their hard fork. At this point there would be two Bitcoin blockchains. This could play out in a similar fashion to the Ethereum hard fork that occurred Summer last year following the DAO hack. There is now an Ethereum Classic as well as a new Ethereum.
Economically speaking the majority of users have followed the development team and Ethereum foundation to the new Ethereum chain and technological development has not been hindered.
However, in the case of Bitcoin it is less certain which chain the market will value higher as the core development team have less control over the direction of Bitcoin's future than the Ethereum development team had during the Ethereum fork.
Q. Do they need community consensus to activate UAHF?
A. Bitmain does not require community consensus to activate the UAHF. The Bitcoin consensus protocol allows anyone to mine blocks that run a different protocol.
Q. What impact will it have on bitcoin? Will there two ledgers -- one for the conventional bitcoin and the other for Bitmain controlled bitcoin?
A. If Bitmain activated the UAHF there would be two legitimate Bitcoin ledgers on August 3rd. The UASF version of Bitcoin and the newly forked Bitmain Bitcoin.
Q. Why are some calling the Bitmain UAHF a bluff? What are they bluffing?
A. It is clear that a Bitmain UAHF is not in their best interests and that if they really wanted to hard fork, classic game theory suggests they should not have made this intention public. This suggests new plan and avoid the BIP148 UASF scenario.
This seems to have worked, as in the days following the Bitmain press release several mining groups have started showing support for SegWit2x.
Which is a solution that implements Segregated Witness as well as two MB blocks within 6 months. However for this to work Segwit2x code must be finished and see an 80 percent support for SegWit2x. All following this ambitious timeframe outlined by the Segwit2x team.
Q. What will be the impact on the bitcoins price if Bitmain has its way?
A. If Bitmain actually wanted to hard fork Bitcoin via a UAHF then a splitting of Bitcoin would certainly lead to a period of high price volatility whilst the market decides which chain is the more valuable chain.
Ultimately it highly likely that the price of both Bitcoin chains would be lower than pre-fork as supply has increased.
Currently it is hard to say how much of the uncertainty surrounding the forking debate has been factored into the current price. If it weren't for the forking issues would Bitcoin
If it weren't for the forking issues would Bitcoin continued its recent run past USD 3000?
A volatile and interesting couple of months lies ahead and it will test the ability of the Bitcoin community to come to consensus.Follow @shukla_05sid