The Blockstream Conspiracy and the Bitcoin Cash Pump
It’s all very confusing you see, because more than $100B is at stake. And when that kind of money is in play, anything is possible.
What we’ve got right now is a volatile mixture of honest people doing things they think are right for their customers and their business, and dishonest actors using the confusion left in their wake to pump and dump. And we, the users, are caught in the middle, trying to figure it all out.
The Segwit2x Fork Is Called Off
So a bunch of companies and miners thought they could hard fork Bitcoin. In fact they claimed the support of 80%+ of the hashpower and a huge percentage of Bitcoin-related companies. And yet, in the end it was called off in a message signed by 6 people. This brought to an end a multi-year discussion about scaling Bitcoin. Segwit won — with this activated, Layer 2 solutions like Lightning Network are going ahead full steam.
Fetishing Decentralization
Let’s talk about the folks on the “losing” side of the fork debate. There’s a large contingent of people who legitimately believes that Bitcoin needs bigger blocks to scale. And yet most prominent crypto minds including Nick Szabo, one of the earliest people involved in Bitcoin spoke out against the fork in the end. When it comes to something as complex as blockchains, I’m going with the people who work on the protocol over the people who run the companies.
Most big blockers believe that every transaction in the world should be done on Bitcoin. They read the whitepaper and cite the title of “Peer to Peer Electronic Cash” as a specific vision that wants to replace cash in its entirety. They see the “failing” of Bitcoin to scale to accommodate more transactions as a failing of that vision.
Here’s the problem: that would be ridiculously inefficient. Blockchains are terribly inefficient technologies. You have to copy every transaction to every node in the world. Even assuming storage and bandwidth follows Moore’s law and keep getting cheaper and bigger/faster, we’d still have a lot of problems.
Remember when we had 56kb modems and we could only get webpages with text on them, and the occasional animated gif? And then we got cable modems with 1mb connections and all of a sudden video and audio were a thing? And now we have 50mb/s connections and we HD VR videos?
Larger blocks are not a real solution to scaling. They will fill up faster than we can make them bigger. What they will do however is make it so that the only way to run a Bitcoin node is to have a lot of money and a datacenter. If you’re going to do that, just use PayPal.
In fact, there is nothing wrong with using centralized entities to transmit our money. We’ve been doing it for years and it’s mostly fine.
Where Bitcoin shines is its property of immutability and censorship resistance. A sound money that cannot be inflated away or stolen from you by the government is hugely important, especially in failed governments and unbanked economies.
A digital currency that can be transmitted instantly across the world? We have banks/paypal that do that. And if you just have a little patience, we’ll have a plethora of ways to do that with second layer technologies on top of Bitcoin in a year’s time.
The Blockstream Conspiracy
There’s a pretty popular meme going on right now on the big block side. It goes like this:
- Blockstream pays many of the core bitcoin developers
- Blockstream’s entire business model is to sell side chains
- Blockstream has no business model if the blocks are big enough so that side chains are not needed.
This is weak FUD. Here’s why:
- Bitcoin Core is hundreds of devs from around the world. It is an open source project. Most don’t have anything to do with Blockstream.
- The idea that a company that employs the greatest crypto minds in the world and has $125M+ of funding can’t pivot and do something other than side chains to make money is patently absurd.
The BCash Pump
As soon as Segwit2x is announced dead, we enter a new phase. Big blockers scramble for an exit. Some are rage quitting Bitcoin because they aren’t seeing it go in the direction they want. Where to go? Turns out on August 1 we already had a fork of Bitcoin with big blocks, Bitcoin Cash (Also known as BCash, BCH, and BCC).
Bitcoin Cash is an interesting beast. You see it comes with a thing called EDA (Emergency Difficulty Adjustment) which was designed so that it could survive as a minority fork because it had next to no hashpower on it when it split.
The EDA means that when the fork isn’t mined for a while, it becomes very easy to mine very quickly (much quicker than bitcoin, which takes about 2 weeks to adjust difficulty when miners change).
What did miners do with the EDA? They gamed the hell out of it. They stopped mining Bitcoin Cash, starving out the chain so that it wouldn’t produce a block for a day. Then when the EDA adjusted downward they would pile on to the chain and mine blocks so fast it would produce 1 a minute.
The Bitcoin Cash chain was effectively unusable. And yet we had people all over social media promoting it like it was the next coming of Jesus, like it had already won because it was “following Satoshi’s vision” (a little too religious for my taste).
Weak yet well crafted FUD circled, saying “bitcoin can die, bitcoin cash cannot die”. The FUD stated things like the EDA would cause all miners to switch to BCash overnight, ignoring the economic power of the users. The users didn’t place economic value on a network that had not yet proven itself.
Meanwhile miners gamed the system to steal bitcoins from the future into the present, mining the chain way faster than it should be normally mined. What does this mean? The miners are sitting on a giant stash of BCash. And so is every Bitcoin Whale that existed before the BCash fork (including mr Roger Ver). While the whales manipulate the price, most regular users either have it stuck in cold storage or are waiting on Coinbase to give them theirs in January, or are otherwise confused and don’t know how to even access their BCash. With such low liquidity, it is easy to move the price and it’s likely that price manipulation is happening to promote the coin.
While the BCash gang was having fun with their coin, Bitcoin pumped over $7k on post-fork-cancellation euphoria. Long due for a correction, it was the perfect time for the BCash crew to start some PR of their own to inflate BCH value:
- Jihan Wu, the most powerful of the chinese miners and ASIC manufacturers starts singing kumbaya: “BCH community needs to learn a hard lesson. Be friend with other competing coins, learn from them, and make BCH better. Don’t play hatred, don’t wish competing coins ill. Just wish and try to make BCH better.”
- Roger Ver, another BCash player, publishes “Bitcoin Cash is Bitcoin” (Oct 16) on Bitcoin.com, the first site that most people new to the community will encounter, thus spreading very confusing information.
- Bitcoin Classic team announces they are abandoning their project to support BCash.
- Bitcoin Cash is purchased heavily in Korea (theories going around that it’s being promoted on the ground).
Result: PUMP. Bcash goes through the roof reaching 0.17BTC price. It remains to be seen whether this is the end of the pump.
BCash could certainly turn into a legitimate coin. The github is not a ghost town unlike the Segwit2x repo was. But right now I would stay the hell away until all the volatility is shaken out.
Oh yeah, one more thing. BCash is itself hard forking on Nov 13 to fix the EDA problem.
Just another week in crypto!
