by: Tam Ging Wien
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In August this year, the first cryptocurrency Bitcoin forked into the classic Bitcoin and a new cryptocurrency called Bitcoin Cash. With Bitcoin Gold hard fork just around the corner on 25-Oct and another one in potential split due to Segwit2x in November, we might end up with 4 different version of Bitcoin by end of this year!
To have an appreciation of this, we must first look back into history. For years, factions have been squabbling for control over how the underlying technology Bitcoin known as the blockchain will evolve and scale.
On one side are the core developers of Bitcoin who want to introduce a fix known as Segregated Witness (SegWit) to help Bitcoin scale. SegWit removed the witness data (or signature) from the main block into a separate store. Then, witness day take up nearly 65% to 70% of Bitcoin's 1MB block space. Moving this data out effectively gives each block an additional 70% of available space to store more transactions. Furthermore, it fixes a bug in Bitcoins code known as transaction malleability give Bitcoin the ability to support improved technologies in the future such as lighting networks and side-chains.
On the other side are the miners and mining hardware manufacturers oppose SegWit and instead are proposing to scale Bitcoin by increasing the block size. They feel that the current 1MB block size is limiting Bitcoin's ability to scale and have therefore proposed to increase this limit to 8MB in order to fit more transactions into a single block.
The mining hardware manufacturers are accused of sidelining good technology improvements like SegWit due to self-interest. It is suspected that the ASIC Boost technology used in it specific Bitcoin mining hardware outperform regular mining hardware by approximately ~20%. ASIC Boost however is likely to be incompatible with SegWit resulting in the loss of this advantage.
The miners are also accused of blocking performance improvements through SegWit as they would stand to earn more. Blocking SegWit also means blocking upgrades like side-chains to Bitcoin. Without side-chains, every transaction must go through the main block-chain allowing miners to collect transaction fees. The slower the transactions, the higher the transaction fees they can collect.
In order to appease both sides, other groups have propose to adopt advantages of both SegWit and block size increases in a proposal known as SegWit2x. SegWit2x will have both SegWit changes incorporated while increasing the block size from 1MB to 2MB.
While the hard fork from Bitcoin to Bitcoin Cash and Bitcoin SegWit2x was a battle of scalability, the Bitcoin Gold hard fork is more of a battle of independence. Today, Bitcoin mining is controlled by Bitmain who manufactures its specialised Bitcoin ASIC miners solely for the purpose of Bitcoin and Bitcoin Cash mining.
Bitcoin Gold's strategy is to switch out of Bitcoins SHA-256 cryptographic hashing algorithm to Equihash with the aim of reducing the monopoly of Bitmain’s ASIC miners. Equihash is the same hashing algorithm used in Zcash and is a much more CPU-efficient but more memory-oriented. Besides processor power, it would also requires a minimum amount of RAM typically found in most PCs to mine efficiently. However this amount of RAM cannot be easily built in a cost-effective manner on custom hardware like ASIC. This would take the mining hardware control out of Bitmain and back into the hands of the public.
ASICs is short for Application-Specific Integrated Circuit is an IC chip customized for a particular use in this case to mine Bitcoin, rather than intended for general-purpose use.
Absolutely not! We should embrace what comes and prepare accordingly.
Instead of selling Bitcoin before the 01-Aug-2017 hard fork, holding on to it would have given you free Bitcoin Cash and the combine value is higher than the original Bitcoin itself.
We therefore think the coming Bitcoin Gold and SegWit2x hard fork to be like Bitcoin paying you a dividend. As long as you know how to store your Bitcoins properly, you will receive the same proportion of Bitcoin Gold. Ensure that you take your Bitcoins off any exchange including Coinbase and Coinhako and store them offline where you have control over your private keys.
The problem that you need to however realize is that with these repeated forks of Bitcoin, the functionality and addresses formats are duplicated which means that you could accidentally send Bitcoins to a Bitcoin Cash address and loose them forever! So very careful when you are transferring your Bitcoins and other Bitcoin forked altcoins around.
In the end, the technical matter of forking code is simple, the difficult is in the marketing and ensuring that the cryptoocurrency has an established following. Without demand and a following, it will died a natural death. We can’t predict the future of which cryptocurrency will prevail, so we will likely hold on to both after the fork and watch how the market develops.
So, will Bitcoin Gold fly in the same way that Bitcoin Cash did? How about the SegWit2x fork? Only time will tell. But instead of betting on one or the other, we will just hold on to Bitcoin and "HODL" it and enjoy what comes out of the coming forks.
At ProButterflyTM, we encourage all our readers and subscribers to dabble a little into the cryptocurrency space as we believe that asset class has a long term potential and the wave has only just started. We encourage you to read our introduction to blockchains and cryptocurrencies as the following links:-
The views and opinions expressed herein are those of Tam Ging Wien (“the author”) and do not necessarily reflect the official policy, position or view of the author’s employer, organization, committee, or other group(s) or individual(s).
The author at time of writing hold stakes in various cryptocurrencies such as Bitcoin, Ethereum and Litecoin.
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