Bitcoin and an Imminent Fork – The Aftermaths
Since late 2015, the bitcoin community was stormed by the scalability, or block size, debate. Although several solutions have been proposed during the past couple of years, none has received wide acceptance, while bitcoin’s scalability problem is getting worse each and every day. Right now, the bitcoin community is divided into two camps;
a. The camp supporting Bitcoin Core:
This camp supports keeping the block size as it is, i.e. 1 Mb, yet they propose code optimization to shrink the size of transactions along with other approaches to increase the bitcoin transaction throughput rate via means of a “soft fork”. This camp mainly supports the “Segregated Witness” (Segwit) upgrade as a solution that mitigates many bitcoin bugs and also opens the way for further scaling using off-chain solutions such as the “lightning network”.
b. The camp supporting Bitcoin Unlimited:
This camp supports Bitcoin Unlimited which is a bitcoin client forked off Bitcoin Core and designed to process transactions into blocks whose size is greater than the current limit of 1 Mb. With Bitcoin Unlimited, miners are able to independently choose the size of blocks they will produce. As shown by the below pie-chart from coin.dance, 9.2% of nodes across bitcoin’s network currently run the Bitcoin Unlimited client.
You have probably heard during the past couple of years about a possible “hard fork” that could split bitcoin into two separate blockchains and two different coins. This could occur if the nodes running the Bitcoin Unlimited client decide to start producing larger blocks. If 30-35% of miners start producing larger blocks, as per the Bitcoin Unlimited protocol, a new coin will be produced; BTU.
Throughout this article, I will discuss the implications of a bitcoin “hard fork” which is more or less imminent.
If a hard fork occurs, what will happen to my bitcoins?
Depending on how you store your bitcoins, e.g. desktop wallet, online wallet, exchange…etc, you can expect one of three scenarios:
1. All of your coins will become BTC only
2. All of your coins will become BTU only.
3. Your coins will be doubled, so if you had 2 coins before the fork occurs, you will have 2 BTC and 2 BTU after forking is completed.
The exact outcome depends on how you are storing your coins and whether or not you control the private keys of your bitcoins. If you store your coins using an online wallet or a cryptocurrency exchange, then you don’t control your private keys, so you are letting another entity choose the fate of your coins.
To ensure that you will have both BTC and BTU, in event of a fork, you should store your coins via a local wallet on your machine, so that you would be controlling your coins’ private keys.
The Aftermaths of Turning Bitcoin Into Two Coins:
Last March, a group of the world’s biggest cryptocurrency exchanges announced that in case of a hard fork taking place, the newly formed coin, Bitcoin Unlimited (BTU), will be considered an altcoin and will be traded freely on their exchange platforms. The statement was signed by Bitfinex, BTC China, Bitstamp, Bitsquare, Bittrex, itBit, ShapeShift, Kraken and Coinfloor. Along a separate statement, Poloniex announced that the exchange will continuously support Bitcoin Core as BTC.
The hard fork and the creation of 2 different coins can markedly affect the price of both BTC and BTU. Imagine that all of a sudden the coin supply doubles; this will definitely pull price downwards. Also Bitcoin Unlimited is supported by Roger Ver, a bitcoin entrepreneur that is claimed to own around 300,000 bitcoins, bitcoin.com and a large number of influential bitcoin domains. Ver can influence the popularity of BTU, via using bitcoin.com as a marketing tool, because, to the public, bitcoin.com might seem like an official bitcoin portal.
To support BTU, Ver can dump his BTC to drive its price to very low levels. Definitely, moving 300,000 BTC into the market in a short period of time can cause a disastrous price crash. Even more, Ver will not be the only one selling his BTC, as there are numerous BTU supporters who would also want to dump their BTC for the same reason. On the other side of the picture, as BTC supporters will also receive equal amounts of BTU, they might try to do the same by dumping their BTU coins.
It will be a war between two camps, two coins and two blockchains, but bitcoin will be the loser as whatever the scenario is, a hard fork will double the coin supply, decrease trust in the bitcoin brand and crush the community into two opposing camps.
In my opinion, we should avoid forking by all means and preserve the bitcoin brand. The community should better remain united and work on providing solutions that will preserve BTC as a single powerful coin.