The Unlikely Truth About Bitcoin Hard Forks

2017 has been quite the year for Bitcoin. Not only has it reached all-time highs, but by the end of it, Bitcoin will have hard forked several times. From an outsider perspective, people may view this uncertainty as negative. The truth is that hard forking is not only healthy for Bitcoin but a necessary step for its future development.

What is a Hard Fork?

A hard fork is a permanent divergence within a blockchain that happens when one group of nodes (computers connected to the blockchain network) signal for the original protocol while another group of nodes signal for a different protocol, isolating themselves from each other. The transaction history in each blockchain is identical up until the point of the fork.

Why Hard Forks?

Hard forks are a natural process in an evolution of a network when participants in it become isolated from each other. They don’t happen just in Bitcoin, they happen everywhere else, too.

Image result for hard fork bitcoinThe best example of a hard fork of a complex network similar to Bitcoin is The Reformation. When Martin Luther posted his 95 Theses on a Church in Eisbein, Germany, it signaled the beginning of the schism between the Catholic Church and soon to be created Protestant sects. One group of people (to think of the last phrase in Bitcoin Terms, conceptualize a ‘cluster of nodes’) began to believe (or, in Bitcoin Terms, ‘signal’) the words of new Protestant leaders, they no longer participated in the universe of the Catholic Church (or in Bitcoin Terms, the blockchain of the Catholic Church).

If you think of Christianity as a Blockchain, all denominations have agreed upon interpretations up to a certain point. Small disagreements in interpretations and practices add up and evidently lead to more serious conflicts. When the conflict causes a split, the separated chains begin to record a different history on their ledger. It is not a surprise that certain different denominations have different leaders and literature to which they ascribe to.

In other words, any network of nodes that interacts with each other has the potential to split when different factions of the network have differences in objectives and values.

Now, let’s go over three of Bitcoin’s most well-known hard forks.

Bitcoin Cash

The Bitcoin Cash hard fork was over a community disagreement for how to scale Bitcoin’s Blockchain. Bitcoin can only process 3-4 transactions per second which is abysmal compared to Ethereum (20 per second), Paypal (193 per second), and Visa (1,667 per second).

Image result for bitcoin cashIf Bitcoin wants to become the medium of exchange it intends to be, then actions must be taken in order to make transaction speeds faster.

To increase the network capacity, the community proposed two scaling solutions:

  1. Seg-Wit (mentioned later in this article), which would allow transactions to take place on a ‘side chain’ run by another entity, alleviating the load on the original chain.
  2. A block size increase, which would record all the transactions on the chain.

The politics of Bitcoin are for another post, but a common critique of Bitcoin Cash is that it centralizes hashing power for those who can afford to mine large blocks. This centralization is antithetical to Bitcoin’s ethos of being decentralized.

Because of this, the vast majority of the Bitcoin community opted for Seg-Wit with 97% of nodes in the network signaling for it. Bitcoin Cash still exists, but is considered by the community to be currently an altcoin. 

Bitcoin Gold

Image result for bitcoin goldIn the case of Bitcoin Gold, the fork will change the Proof-of-Work algorithm from SHA-256 to an Equihash. This fork isn’t as contentious as Bitcoin Cash and is driven by the ideological belief that mining should become more decentralized.

A main critique of SHA-256 is that it requires expensive ASIC miners which are dominated by centralized mining pools mostly located in China. Equihash is mostly mined by GPU cards which is much more accessible to the average miner and is employed by Ethereum and zCash (Classic).

It is important to note, however, that the man behind Bitcoin Gold, Jack Liao, is also the CEO of multi-GPU mining unit manufacturer LightningASIC, giving him a financial incentive to back the hard fork. The fork is intended to take place on October 25th.

Segwit2x

Segwit2x finds its origins in the New York Agreement signed earlier this year. Basically, the different entities in Bitcoin agreed to implement segregated witness by August 1st, 2017 and later increase the block size by November. When the Bitcoin Cash hard forked in August, many Bitcoin core developers felt like the NYA was void, and have refused to increase the block size. Others in the industry, such as Jeff Garzik, support increasing the on-chain Bitcoin block size from 1MB to 2MB, and along with Segwit will increase total block size to 4-8MB.

Image result for segwit2xThe main contention with Segwit2x is that it does not offer replay protection. This means that, if you send your B2X coins to one address, you may find your BTC coin may disappear as well. Since no side will offer replay protection, then what we will witness is a giant game of chicken and when November, whichever protocol has more hashing power will absorb the other one.

The price of Bitcoin will probably be volatile until the Segwit hard fork is completed. Leading up to the Bitcoin Cash hard fork, the price of Bitcoin fluctuated between $1,900 and $2,900, but once the event horizon (the August 1st hard fork) was realized, it only took 13 days until the price of Bitcoin reached $3,000 for the first time.

Although it is next to impossible to predict anything short term in the price of Bitcoin, it can be expected something similar to happen preceding and during the Segwit2x hard fork. Only when the hard fork is resolved and there is a clear winner, then certainty will enter the market again.

Conclusion

Put simply, hard forks are a natural cleansing of the system as well as nice dividends for hodlers. With three notable hard forks happening in 2017, it should be expected that they will not go away in the future. Because of this new reality, cryptocurrency exchanges should be more prepared to deal with hard forks.

 

From Vocabulary to Slang, Here Are the Bitcoin Terms You Need to Know

Bitcoin has created a new world of vocabulary to articulate its universe. Some terms are completely new (ex. Blockchain, Cryptocurrency, Proof of Work) while others adapt existing words for new purposes (ex: Wallet, Address, Mining). As I started to write posts about Bitcoin, I realized that most people are not familiar with definitions of common terms used. Because of this, I have compiled a list to help readers comprehend and understand articles that cover Bitcoin and cryptocurrency.

Formal Vocabulary

ASIC: An acronym for “Application Specific Integrated Circuit”. ASICs are silicon chips specifically designed to do a single task. In the case of bitcoin, they are designed to process SHA-256 hashing problems to mine new bitcoins.

BTC:  A common unit to describe one bitcoin, as USD represents one United States Dollar.

Bit:  There are 1,000,000 bits per bitcoin so 1 bit = 0.000001 BTC.   Cheaper items are denominated in bits.

Blockchain:  type of distributed ledger, comprised of unchangeable, digitally recorded data in packages called blocks (rather like collating them on to a single sheet of paper). Each block is then ‘chained’ to the next block, using a cryptographic signature. This allows block chains to be used like a ledger, which can be shared and accessed by anyone with the appropriate permissions.

Bitcoin:  Bitcoin with a capital ‘B’ is used to describe the network or protocol that bitcoin runs on, bitcoin with a lowercase ‘b’ represent the digital token or money that is used on the Bitcoin network.

Bitcoin Address:  Also known as a public key, is similar to an email address.  Give your bitcoin address to anyone who you want to receive a payment from.  It is best practice to use a new bitcoin address for each of your transactions.

Block:  A block is a group of bitcoin transactions that are being processed & confirmed.  Roughly every 10 minutes a miner will find a new block, which will confirm any bitcoin transactions that were processed during that 10 minutes.

Confirmation:  A confirmation means your transaction was processed by bitcoin miners and added to a new block on the blockchain.  It is generally accepted that after 6 confirmations your transaction has been set in stone globally and cannot be reversed by anyone.

Difficulty: In Proof-of-Work mining, is how hard it is to verify blocks in a blockchain network. In the Bitcoin network, the difficulty of mining adjusts verifying blocks every 2016 blocks. This is to keep block verification time at ten minutes.

Double Spend:  When a malicious user tries to send their bitcoin to two different people at the same time to pay for several services with the same bitcoin.  It is up to miners to decide which of the transactions are accepted into the network.   One transaction will receive confirmations, the other will be rejected by the network.  Most users never have to worry about double spend attacks, they are rare and difficult to pull off.

Mining:  Bitcoin mining is making computers do complex mathematical calculations for the Bitcoin network to confirm users bitcoin transactions in a block.  Bitcoin miners greatly increase the security of the network and are rewarded with new bitcoins and transaction fees for their efforts.

Full node: A node that fully enforces all of the rules of the blockchain.

Gas: A measurement roughly equivalent to computational steps (for Ethereum). Every transaction is required to include a gas limit and a fee that it is willing to pay per gas; miners have the choice of including the transaction and collecting the fee or not. Every operation has a gas expenditure; for most operations it is ~3–10, although some expensive operations have expenditures up to 700 and a transaction itself has an expenditure of 21000.

Hash Rate: Is a measurement of computer processing power of bitcoin miners.  Miners earn bitcoin for their share of the network hash rate, so they are incentivized to have the highest hash rate possible.  This works out for everyone because the security of the Bitcoin network increases as the network hash rate grows.

Node: Any computer that connects to the blockchain network.

Private key:  Every public key (bitcoin address) has a private key associated with it.  A private key is a secret piece of data that proves your right to spend bitcoins from your wallet.  Your private key(s) are stored in your computer if you use a software wallet; they are stored on some remote servers if you use a web wallet.  If you don’t encrypt your bitcoin wallet it makes it easier for someone to steal your private keys.  Anyone with access to your private keys can spend your bitcoin from any computer worldwide.

Proof of Authority: A consensus mechanism in a private blockchain which essentially gives one client (or a specific number of clients) with one particular private key the right to make all of the blocks in the blockchain.

Proof of Stake: An alternative to the proof-of-work system, in which your existing stake in a cryptocurrency (the amount of that currency that you hold) is used to calculate the amount of that currency that you can mine.

Proof of Work: A system that ties mining capability to computational power. Blocks must be hashed, which is in itself an easy computational process, but an additional variable is added to the hashing process to make it more difficult. When a block is successfully hashed, the hashing must have taken some time and computational effort. Thus, a hashed block is considered proof of work.

Protocols: Sets of formal rules describing how to transmit or exchange data, especially across a network.

Satoshi:  The penny of bitcoin.  1 Satoshi = 0.00000001 BTC  This is the smallest measurement of bitcoin.

SHA 256: The cryptographic function used as the basis for bitcoin’s proof of work system.

Smart contracts: Contracts whose terms are recorded in a computer language instead of legal language. Smart contracts can be automatically executed by a computing system, such as a suitable distributed ledger system.

Softfork: A change to the bitcoin protocol wherein only previously valid blocks/transactions are made invalid. Since old nodes will recognize the new blocks as valid, a softfork is backward-compatible. This kind of fork requires only a majority of the miners upgrading to enforce the new rules.

Token: A digital identity for something that can be owned.

Transaction block: A collection of transactions on the bitcoin network, gathered into a block that can then be hashed and added to the blockchain.

Transaction fees: Small fees imposed on some transactions sent across the bitcoin network. The transaction fee is awarded to the miner that successfully hashes the block containing the relevant transaction.

Wallet:  Where you store your bitcoins. A bitcoin wallet is a program that manages all of your bitcoin addresses and allows you to save or spend your bitcoin.

Common Slang

ALTCOIN = Any cryptocurrency other than bitcoin.
ASHDRAKED = A situation where you lost all your money.
BAGHOLDER = A person who buys and hold coins in large quantity hoping to make good profits in the future.
BEAR/BEARISH = Negative price movement
BTFD = Buy The Fucking Dip (an indication to buy a coin when it has dumped so hard)
BULL/BULLISH = Positive price movement
DILDO = Long green or red candles
DUMP = To Sell off a coin
DUMPING = Downward price movement
DYOR = Do Your Own Research
FA = Fundamental Analysis
FOMO = Fear Of Missing Out (A coin is pumping and you get the feeling it’s gonna pump more, so you buy high)
FUD = Fear Uncertainty & Doubt
HODL = Hold On for Dear Life
JOMO = Joy Of Missing Out
LONG = Margin bull position
MCAP = Market Capitalization
MOON = Continuous upward movement of price
OTC = Over The Counter
PUMP = Upward price movement
SAJ CANDLE = Huge green candle
SHITCOIN = A coin with no potential value or use
SHORT = Margin bear position
SWING = Zig zag price movement (Upwards and downwards)
TA = Technical Analysis
REKT = When you have a bad loss
REVERSE INDICATOR = Someone who is always wrong predicting price movements.
RSI = Relative Strength Index
WHALE = Very Wealthy trader/Market mover

Sources

https://steemit.com/blockchain/@mio31337/69-common-terms-in-blockchain-vocabulary 

http://bitcoindaily.org/bitcoin-vocabulary/

Are You Too Late For Bitcoin? The Answer May Surprise You

Bitcoin has been receiving a lot of press recently over the massive returns it has brought investors in 2017. In the nine years of its existence, people have been made a number of millionaires and is restructuring where the power centers are in the world. It may seem that anyone hearing about Bitcoin now is late to the party but the truth is that Bitcoin and Cryptocurrency markets are still in its infancy. Here are some numbers:

  • 10 million users have signed up for Coinbase. That is 0.0013% of the world’s population.
  • Total market capitalization of cryptocurrency worldwide is around $150 Billion.
  • In October 2017, 17.5 million Bitcoin wallets were registered on blockchain.info. That is 0.0023% of the world’s population.

To put that into perspective:

It is clear that the cryptocurrency According to MIT Technology Review, the cryptocurrency market is growing exponentially but at the same time has shown some signs of maturity. A study cited in the article predicts that the market dominance of Bitcoin will fluctuate around 50% in 2025, a percentage that has already been realized today. With Bitcoin bulldozing past $5,000 in October, the gains to be made in Bitcoin are limited. If you are looking to make huge returns similar as if you were buying Bitcoin in 2011, look into researching promising altcoins.

How To Perceive Bitcoin Through Understanding Money and Content

Bitcoin has been around for nearly a decade, and yet, it is still a mystery to many people how it works. After listening to several experts speak about the nature of Bitcoin, I noticed that in order to understand it, you need to deprogram how you think about money.

The Different Functions of Currency

Depending on who you ask, money has several definitions and functions.

  1. Money is an efficient medium of exchange that avoids the need for bartering
  2. store of value that holds wealth for long periods of time
  3. unit of measurement

One can argue that money has become a system of control, but that is not the point of this article, rather, it is to show how money is a form of content that instrumental for societies to function.

How We Live in an Ocean of Content

Content is an outside force in which you can interact and absorb information from. This definition extends to anything that can make you reflect on yourself including but not limited to media, people, and substances. The way I view the world is that we are surrounded by content the same way fish are surrounded by water, and when people share commonalities among content, that is how culture forms. From reading your Facebook feed to posting a Snapchat story, there are plenty of simple ways of posting and absorbing content. Another form of content that is a level more complex is having a debate with someone about ideas; you are simultaneously creating and absorbing information at once. One of the most powerful forms of absorbing content is through drugs and alcohol. The reason why I call drugs a form of content because of the way the chemical composition of them drugs interact your brain. There are uppers, downers, psychedelics, and everything in between that temporarily but drastically changes your perception, and consistent use can have an effect on who you are. It is not a coincidence that drugs are the most regulated forms of content by governments. Who knows what the world would look like with unfiltered access to them? Similar to how fish do not question what water is, people do not question what content is either because we are engulfed by it.

Money is a form of undefined content; it can become anything. By being accepted is the foundational medium of exchange by society, money is reserved potential that can become anything you choose it to be. Spending money to attend a concert is using that potential reserve into a memorable experience or buying drinks at a bar with the intent of getting drunk is transferring your funds in order to change your state of mind. There is something about money, and its ability to become anything makes people’s imaginations launch into the stratosphere. Especially true in American culture, money has been elevated to a holy status. Money is a major theme in the vast majority music we listen to and entertainment we consume. Americans are chasing dollars due to it being the ultimate sign of success in the United States’s capitalist system, but rarely ask where money gets its value in the first place.

Why the Dollar has Value

In the international monetary system, the US Dollar holds a special place among the world’s currencies because it acts as the world reserve currency, meaning that governments are required to hold some of it in order to participate in global finance. The dollar used to be backed by gold, but since Nixon decided to leave the gold standard in 1971 in favor of a fiat system, the only thing that has been backing the dollar is the sheer size of the US Economy and the faith that the US Government can pay back its debts.

Dollars come into existence through the policies of the Federal Reserve System. The Federal Reserve is the Central Bank of the United States and is sanctioned to issue currency and set monetary policy. The Federal Reserve lends money to banks like Goldman Sachs and JP Morgan who then lend it to business. Quite simply, the Federal Reserve is the bank’s bank; they are the gatekeepers of what I like to call the faucet that floods our world with undefined content.

Bitcoin differs from the Federal Reserve and other central banks because the faucet of creation is not controlled by a centralized group of bankers but a decentralized network of computers solving complex problems. What gives Bitcoin its value is that it possesses all three essential traits to be classified as currency. The blockchain technology seamlessly keeps track of every transaction to ensure accuracy, wallets serve as one’s own bank account that is free from government scrutiny, and Bitcoin is becoming widely accepted among merchants, most notably Expedia and Overstock. Every ten minutes, you can be sure that a new Bitcoin block will be mined and added to the chain.

Conclusion

Just as the internet decentralized publishing allowing anyone to share their work to the world, Bitcoin and cryptocurrency will do the same with banking. There is something powerful about decentralizing the faucet of the uncertain potential of money because it will shift the world monetary system from being fiat-based to crypto-based. That is not to say that fiat money will just disappear, but rather that Bitcoin will play a much more substantial role in the global economy.