Bitmain Hard Fork

Bitmain has announced that they will sponsor a hard fork of the Bitcoin network in early August. It is supposed to go live a couple of days after the UASF (user-activated soft fork), which has an activation date of August 1st, 2017.

Bitmain is known for building mining hardware and running a mining pool. They are not known for any expertise in developing protocols or software. It remains open to question if they will be able to deliver a credible project people can hard fork to. It also remains open to question if anyone will want to do so.

As far as I can see, this fork would be heavily influenced by what Bitmain thinks. In contrast, the point of Bitcoin is to have no one in charge. It is supposed to be peer-to-peer. That means that all participants in the network are equal in their influence (and lack of such) on changing the consensus rules.

If you have one private company in charge, why not just run normal database software? Bitcoin is extremely wasteful in its use of energy and other resources. Last time I checked one single Bitcoin transaction used around 10 kWh. Blockchain.info quotes the cost of one single Bitcoin transaction at $21 for June 13th, 2017. Of course distributing all transactions in history to all nodes on the network is expensive, even if you don’t insist on further increasing those costs with unlimited block size.

The only reason to throw so many resources at the network is that you need to trust no one in order and can still absolutely trust the ledger. Any coin run by Bitmain or any other single party will lose that advantage. In that case it doesn’t make sense to run a blockchain in the first place.

Some people are afraid of Bitcoin forks. I think such fear is misplaced. This is good news in many ways.

There have been lots of forks already. Every altcoin can be seen as a hard fork of the Bitcoin network. The only difference is that this time around, Bitmain may want to call their project “Bitcoin”. Other people propose names like “BUC” (pronounced “bug” and inspired by the “Bitcoin Unlimited” name). As “Bitsquare” developer Manfred Karrer notes when proposing this name:

Be assured the selection for the ticker BUC has nothing to do with the many bugs the Bitcoin Unlimited devs have produced in the past.

As far as I know, this is the first time someone tries to fork the Bitcoin network to some different set of consensus rules and still call it “Bitcoin”. It will be very interesting to see how this plays out. I expect the decision on who gets to keep the brand after the fork to be made by the market.

For the very least, we will gain experience on how the market deals with a hard fork. If we find out that the market can quickly decide on the the winner, we get a new upgrade mechanism. Just go ahead and fork to whatever you think is a better idea than the status quo and then wait if the market supports your effort.

Bitcoin needs some kind of clear upgrade mechanism. The idea of waiting for 95% miner signaling has failed, mainly because trusting miners to not abuse that position has proved to be a wrong assumption.

With no clear upgrade mechanism, Bitcoin looks like stagnating. That’s good, as far as Bitcoin as a stable store of value is concerned. Making it extremely hard to change the inflation schedule makes said inflation schedule more or a fundamental Bitcoin strength than if it could be changed anytime by some powerful companies in the space.

But it’s not good as far as introducing new technology like Segwit is concerned. The recent “New York Agreement” showed wide-spread support for activating it already after all the delays. But it is still waiting for activation.

Therefore, I applaud Bitmain for their effort to help Bitcoin gain experience with hard forks. I don’t support their proposal at all, but I think it is excellent news for Bitcoin to have people come out with new ideas (even with very bad ideas like this one) and put them to the vote of the market place.

Gaining a new upgrade mechanism is one of the positive aspects. The other one is that right now people with very different visions are forced together under the “Bitcoin” brand. It makes much more sense for both sides of the debate to each have their own project and just compete in the market place.

And Bitcoin is big enough now to split into two or more projects and still leave both at way too high valuations for experimental technology. The hash rate is at such astronomic levels that even if one of the projects after a split only gets 10 percent, that would be more than the whole network had only two years ago.

Anyway, there are a couple of interesting weeks coming up for the Bitcoin network.