As most of you know, it has been over a year since I’ve written an article so what I’m about to talk about is super important that will probably be referenced for the immediate future. Let me begin by saying that this article was inspired by Vinny Lingham whose post The Power Of The Invisible Hand described a bearish outlook on the Bitcoin Ecosystem along with his disclosure of selling 90% of his Bitcoin holding. While I agree with Vinny on Bitcoin Unlimited being a Moral Hazard and we all need to support SegWit, I slightly disagreed with his solution to the problem of the need for lower Bitcoin Price and him announcing his trading strategy. You can watch me talk about it here. All that aside, I have been doing lots of research and thinking about the reasons that got Vinny so nervous about an imminent Hard Fork and I have to admit that I am now raising my probability that the Hard Fork in Bitcoin is perhaps more likely than not.
Being a strong believer in Adam Smith’s invisible hand myself, I have perhaps taken it for granted that the Core Devs will have the right technical solution ready and tested, and that Mining is still decentralized enough to not be a problem. Some of those assumptions are now in serious question. Let’s move this discussion beyond Roger Ver’s complaints of not being able to make micro transactions On-Chain and move straight to the Chinese Miners and more specifically Bitmain. They not only manage the biggest mining pool in the space, they are also the predominant chip maker that most of the world uses to then compete with them for global hash rate. They have already demonstrated that they don’t care about clearing transaction by not mining full blocks, so what can be their motivation for wanting Bigger Blocks? For starters, bigger blocks will give a huge advantage to larger miners for an even greater centralization of mining, In addition, they are likely interested in keeping SegWit from ever being adopted which keeps all transactions on chain bringing in more and more fees. And it really has become all about the fees because as bitcoin becomes more popular, there will be more transactions, and since the fee is estimated to be 200 Satoshi’s/byte, the higher the price of Bitcoin the higher the fee by default.
At first I assumed that Jihan Wu (Bitmain’s CEO) was simply voting against SegWit as long as he could to keep the Status Quo and enjoy the fees while as price was going up because even he should be smart enough to see the Technical Incompetence of Bitcoin Unlimited Developers. (and here) Now however, there are lots of indications that he intends to go through with a Contentious Hard Fork and we need to speculate as not only to why but what it could mean for the Bitcoin Ecosystem and to Crypto Ecosystem as a whole.
Let’s start with what we don’t know and that is whether the Chinese Government is involved or not. I’m not into conspiracy theories but with their recent interest in Chinese exchanges, you cannot rule out a serious interest into the Mining Operations as well. Imagine the panic if we find out the Chinese Government showed up at all the Chinese miners at once. I have speculated on this as a threat for a while now in my videos, but thee has never been any evidence of this. What we do know however is the Chinese Miners do not want to back down or show weakness, but want to prove their dominance in this space. This might have lead to Jihan Wu’s recent outrage at the exchanges that declared BTU will be the alt-coin and they will not even list it unless a Replay Attack is contained within the BU code.
Too many people from the Bitcoin Unlimited side of the fence have been very certain that BU will be the dominant chain. From Roger Ver looking to make a public 5 figure bet with me personally at Anarchapulco to the arrogance of not even needing to account for a double spend replay attack between the two chains. This is where we start to connect the dots as the new super facility organized by John McAfee’s MGT Capital Mining Operation in China with Roger and Eric Voorhees as advisers. [Opinion: I think McAfee is broke & potentially crazy and an association with him may not be the smartest decision] Many people think Andrew DeSatis broke this news on twitter this past week but it’s been known that they have been in operation for over 6 months. Looking at the stock price of MGT, it has fallen from $4 to 80 cents in the last year which means professionals see 0 value here but we do not know how heavily Bitmain is involved and how many miners they have built for that facility. It is conceivable that they have been secretly trying to mine the longer core chain and when the time come to Hard Fork, Antpool and many current other miners will mine BTU, but this new monster facility will overshadow what remains of the BTC Chain with a greater than 51% dominance. Even if true, having a 51% malicious actor on your chain may not be all that simple to reverse the history of transactions but it will sure shatter the confidence of the users on that chain. But in that scenario, BTU chain has just put themselves in a losing prisoners dilemma because no user would trust their chain going forward. (more on that later)
So now that we have considered the most aggressive hostile takeover possible, let’s explore other possibilities. Recent tweets by George Kikvadze of BitFury are revealing more than they should. It looks like his China Meetings went well, but he seemed fascinated by Chinese Regulators and was impressed by Jihan Wu. But it’s the following tweet that is most interesting and requires some serious thinking as to what is going on:
As mentioned earlier about the Replay Attack, it appears Jihan Wu and the BU team will be putting in the code fixes and while that still does not rule out the BTC hostile destruction option with Bitmain’s Mining Power (as no one in this space should ever be trusted) it does raise the possibility of both chip makers going their separate way peacefully and not attack each other. [Up to this point I have not given a background on BitFury but they are the only other serious player in both mining and chip manufacturing and are full SegWit supporters]. I strongly believe they have been doing their best to convince the Chinese Miners (most notably Jihan Wu of Bitmain) that we all need to stay on one chain but the image of the tweet above implies this is potentially in jeopardy.
The incompetence of the 3-8 Bitcoin Unlimited Dev team has been mentioned earlier and this is where the Bitcoin Core Team comes in. If there is a clean split, not only will there be two coins BTU and BTC, but each side will be dominated by a single Chip Manufacturer and Majority Miner. That means that if people thought bitcoin mining is centralized today, just wait till we have two Bitcoins and each one is 4x more centralized then the current single chain as the two major players are still ‘somewhat’ canceling each other out on our current chain. [I do not have time to talk about additional players like BitClub who’s MLM operation mostly relies on Bitmain Hardware and if they do not obey JIhan Wu, I believe they would end up in a MtGox or Cryptsy situation…. but a story for another day].
This scenario should create a slightly bigger problem for the BU side because the small and “well organized” team of 3-8 incompetent devs would be a simple but horrible collusion of Governance (with their president) and the dominant miner. The 100+ Core Dev team along with their decentralized entities is in a much more trusted state of affairs to deal with the SegWit leading miner BitFury but they know this is also a dangerous situation from a user confidence standpoint. This is why there is a sudden talk of Proof of Work Algorithm Changes that as my best guess would strip the power from these ASIC miners and bring bitcoin mining closer to Sotoshi’s original vision of 1 CPU = 1 Vote. This should now explain what is making BitFury so upset because under that scenario their business is caught between a rock and hard place.
I wish I was able to provide some info on what would actually happen to our coins as the Wallets have not yet gotten together to provide a unified vision and the smaller wallets (like my favorite Airbitz) may not have the man power to deal with this Hard Fork Situation in real time. I also wanted to talk about what this would mean for other cryptos and would an Alt-Coin step up if both Bitcoin Chains lose all confidence of their users, but in reality, it would only lead to a temporary price spike in those coins and their foundation would crumble under the weight of the price. I do not even think they will have the fundamental usage of Bitcoin to even get to these problems we are dealing with now let alone fix them. This problem is clearly not technical as SegWit is the technologically superior solution, the problem is political.
So having explained the situation, it should start to become clear as to what probably has gotten Vinny Lingham so worried about an imminent Hard Fork. His fears are certainly warranted and it should now make sense as to why he sold 90% of his bitcoin that he considered short term trading capital and only retained his core position of the amount he is willing to lose under a worst case scenario. In my case, all the bitcoins I hold is my ‘core’ position and this is why I do NOT trade bitcoin but only talk about it while the things I actually trade I do not talk about to avoid potential conflict with my followers.
What do I think is going to happen?
I am prepared for the worst but I remain a believer in Adam Smith’s invisible hand and the realization that in the 11th hour, both sides will come together and avoid a Hard Fork. You can say i’m being naive and while Bitcoin has never faced such a threat before, it has always found a way to reach consensus. I am doing everything I can to provide you with all the info so you can think logically and not panic if the time comes. At the moment Bitcoin is our one and only chance to give the world permissionless value transfer at any cost and any time. Fees and transaction time are not important, only the fact that your transaction was not censored. This is why I’m here and I will hold on to my Bitcoin until there is evidence to the contrary.
What Can You Do?
The best thing you can do at this point is support the Core Dev Team. They are some of the smartest people in the world that have been working for us since Satoshi stepped away from the space and some even during his reign. They are doing all they can to keep the core principles of Bitcoin intact. I suggest downloading the latest Bitcoin Core Client 0.14 and run a full node.
NOTE: The comments on this website are turned off because I have not yet figured out how to deal with Spam (real spam, not trolls, i can handle trolls). Please save all your comments for YouTube where I plan to talk about this article and/or Twitter. And MOST IMPORTANTLY