The very hard fork of Ethereum and its consequences for Bitcoin

Svein Olnes
Aug 3, 2016 · 2 min read

The hard fork of Ethereum to save the hacked funds of The DAO is an important lesson for all permissionless, global blockchains, and especially for Bitcoin.

What was supposed to be a nice and smooth transition to a forked Ethereum which eventually the whole community would back, turned out to develop into two competing Ethereums; the new forked Ethereum (ETH) and the un-forked Ethereum Classic. At this writing Ethereum Classic has gathered enough mining power to withstand a 51 % attack and has established itself as between the fifth and third most valuable crypto currency. The gap between the two competitors seems to be narrowing..

The development of Bitcoin has been dominated by the quite heated scaling debate for the last couple of years. Most of 2015 was devoted to this intense debate where bitcoiners were divided in two camps; those who wanted a hard fork to increase transaction capacity quickly and those who opposed this and argued for a more conservative policy.

After the Ethereum incident it is clear that those who held back and warned of the consequences of a hard fork have been proven right. That is not to say that Bitcoin does not have challenges with throughput — it is enough to take a look at the mempool to see that the challenge is real.

However, making a hard fork is a serious thing that should be handled extremely carefully. Ethereum has shown the high risk of ending up with two competing currencies after a fork. Much of the heat in Bitcoin’s scaling debate is gone and at the moment it seems that the increased capasity because of SegWit and followed by a 2 MB hard fork is what gather most support. I think the hard fork will be reconsidered in light of the Ethereum incident, and rightfully so.

At the time of this writing another incident took place: a hack of the Bitcoin exchange Bitfinex where ca. 120,000 bitcoins where lost, worth $60–70 mill. It is impossible not to compare this incident to the hack of The DAO. However, there will be no hard fork in Bitcoin to save the funds!