Monday, August 7, 2017
BTC is dead - Long live BTC.
On August 1 2017, after years of acrimonious and bitter infighting, Bitcoin Cash (BCH) was forked off of the original Bitcoin blockchain. It took quite a while to find the first block and a long time after for the second block. The reason for this was because of the low hashing (mining) power on the BCH blockchain. The BCH fork had to operate at the same mining difficulty as the main chain, at the time of the split, but with only a fraction of the hashing power. By design, the BCH fork had an Emergency Difficulty Adjustment (EDA) built in, because the developers had anticipated the reduced hashing power. EDA adjusted the mining difficulty on the BCH chain by a factor of 20% if less than 6 blocks were found in a period of 12 hours. This worked perfectly and as at time of writing the difficulty was reduced to about 17% of the main chain. Thanks to the new 8MB limit the next block promptly cleared out the whole mempool. The largest block found was about 4.6 MB. ( Clear That Mempool )
In his article ( Traders guide to Bitcoin Cash and Bitcoin Segwit ) Stein Ludvigsen pointed out that the BTC chain without the emergency difficulty adjustment is particularly vulnerable to slow block times from loss of hashing power. The BTC chain will have no protection against miner defections and will have to wait out the full 2016 blocks before the next difficulty adjustment. Depending on the block time this could stretch out months instead of the expected 13 days.
In his article ( Cashing out of Bitcoin ) John Milibit postulated that if the BTC chain were to lose mining power to the BCH chain, blocks on the BTC chain would get increasingly hard to find, block times would get longer, the BTC chain would get into a Chain Death Spiral and could come to a grinding halt. Furthermore, blocks found on the BTC chain can only clear the mempool at 1MB per block. This at a time when the mempool will be increasing because of all the transactions wanting urgently to get into the next block pushing fees sky high. The BTC chain will become unusable.
The Awful Truth
This now exposes the awful truth about the BTC chain which have been missed. With the BCH chain alive and well, the BTC chain is now totally dependent on miners' goodwill to continue mining, or the Chain Death Spiral will come into effect. Note the emphasis on dependent on miners' goodwill and less on mining economics. There is now another option for miners. They could leave because the BCH chain becomes more profitable to mine or for any other reason, and there are consequences for the BCT chain from their decision. Prior to the fork they could not leave. Now they have to be begged and persuaded to stay. For a rational investor, even the possibility that such a risk exist, makes the system untenable and unusable. We now realise, how important a role, the miners play. Their contribution should have been appreciated and they should have been listen to and given the respect they deserved. Not vilified and demonised. Who would have known?
What happens now?
The short of it is that no person or economic entity can accept or tolerate risks not within their control. They cannot place their financial well being at the goodwill and mercy of others. The Bitcoin system depends on pure greed and capitalism to function. Socialism, Communism, Dictatorship, Appeal to authority or Miners goodwill cannot work. BTC IS DEAD. LONG LIVE BTC.
Only a gentlemen cartel among investors, users and miners for a BTC hardfork to include EDA can save the current BTC chain. However cartels do not work in real life as the economic advantages to be the first to leave is too strong. In this Game Of Forks there is room for only one fork and BTC lost.
If you have not sold your BCH you will not be affected as BCH will become the new BTC. For the rest there are winners and losers. BTC will have no value. The war is ended, but not in any way we wished or planned. We must all now be magnanimous and humble as we pick up the pieces.
I HOPE I AM WRONG. PROVE ME WRONG. PLEASE.
If I am right, we should stop trading on all exchanges, to protect the innocent, for the good of the Bitcoin community.