Those Forking Blockchains

Mr PotatoHead’s Appalling Discovery

In January I picked up the news that the Bitcoin blockchain was going to fork yet again to create Bitcoin Atom. The fact that a blockchain can split like an ameba and that both resulting blockchains can subsequently survive came as a complete surprise to me — in 2016. In 2017 it happened to Bitcoin, and then again, and then again. I suspect this blockchain phenomenon puzzles people.

I had thought of cryptocurrency like this: A cryptocurrency is not much different to a fiat currency. There’s a supply of it, and its value is determined by what it can buy, just like the dollar. The neat thing about it is that software automatically governs the supply, so nobody can increase the money supply like the Federal Reserve can with the dollar. That seems all well and good until you encounter a fork, which conjures up a currency clone from nowhere.

Fabulous Fun with Forks

The first crypto fork was the Ethereum fork of July 2016. I remember feeling uneasy about it. Someone had pulled off a cunning hack of the DAO smart contract and siphoned an estimated $50m into an anonymous wallet. The majority of the Ethereum community preferred to fork the chain from before the hack and thus thwart the hacker. But it didn’t because the old Ethereum chain with its captive $50m still existed and exists unto this day under the name of Ethereum Classic.

Now Ether currently boasts a price of about $500 per coin and the much-reviled Ethereum Classic checks in at a paltry $16.00 per coin — which does not sound like much. But think of this, Ethereum was only worth $12 after the hack, having fallen from $20. So at $16.00 per coin, the hacker’s ill-gotten $50m is still up 25%. Ethereum Classic did not shrivel up and die.

Another fork followed this year when Bitcoin community filed for divorce over irreconcilable blockchain dimensions. Mr Bitcoin and Ms Bitcoin Cash went their separate ways. And yes, Mr Bitcoin flirted with a $19000 price in December, whereas Ms Bitcoin Cash settled down to a less exuberant existence. But neither of them have looked back.

Personally, I appreciated the divorce because I inherited Bitcoin from each side of the marriage, but somehow it didn’t seem right. And then, out of nowhere, suddenly there was another fork and Bitcoin Gold was born, and close on its heels came Bitcoin Diamond. And Bitcoin Cash itself also forked to produce Bitcoin Candy.

So What Gives?

Well, the strange truth is that anyone with the right software skills can fork Bitcoin, or Bitcoin Cash or any other coin for that matter, and give birth to a new-but-not-so-new cryptocurrency in the process. The difficulty lies in convincing people that it is a worthy investment. However, when you do this, you confer an inheritance on anyone holding the currency. The question is whether you can make a life for the fledgling currency.

If it’s a “proof of work” coin, like Bitcoin, then you’ll have to attract miners to mine the coin, and if they conclude it won’t be profitable, that’s going to be a problem. But it’s not insoluble. You get to make the mining rules, and if you have enough resources, you may be able to mine it yourself for a while.

Bitcoin Atom, Yet Another Bitcoin Fork

Now, take a look Bitcoin Atom (website: bitcoinatom.io). The currency is designed for carrying out atomic swaps using Bitcoin — armed with both the Lightning Network and the Segwit upgrade. An atomic swap, if you didn’t know, is when two cryptocurrency holders, (one buying, one selling) trade with each other. It’s a peer-to-peer decentralized event. A cryptocurrency exchange is a market place where hordes of crypto investors come to trade. It’s a centralized hub, in a blockchain-world, where to coin connoisseurs, decentralization smells of roses and centralization has a distinctly distasteful aroma.

So is “distributed atomic swaps” a viable business idea?

It must be. There are already several well-used services, like ShapeShift or Changelly, which do that kind of peer-to-peer dance. They trade one crypto for another seeking out buyers for those who want to sell and vice versa, precisely to do atomic swaps.

Bitcoin Atom was, I deduce, trying to scoop up users by forking its way into the Bitcoin community at launch.

So how many potential customers could that have got them? Well, if you count the public keys of all Bitcoin wallets, about 25 million. But there will be some double counting in that number. A low-end estimate would be 12 million, just by counting Coinbase users. So a reasonable estimate is 15-20 million Bitcoin holders. That implies 15–20 million potential customers for Bitcoin Atom.

If you’re thinking, “All of those customers holding Bitcoin Atom and wanting to trade it, how could it fail?” — Well, it could indeed fail, as can any enterprise. Check out CoinMarketCap.com to see what has happened since Bitcoin Atom unfurled its fateful fork at Bitcoin block #505888 (January 13th, 2018). The price at launch was about $1200.00, but it quickly collapsed and, at the time of writing (two months later), it is a mere $0.52. This is quite a collapse even in the current bear market for crypto.

For this neat idea to work well, Bitcoin holders had to collect their unearned Bitcoin Atom. To do that they had to:

Either

  • move their BTC to a Bitcoin Atom partner exchange before the fork (block number 505888). The qualifying exchanges were OKEx, YoBit and Exrates.

or

  • Export the private key of your current Bitcoin wallet into a Bitcoin Atom compatible wallet Coinomi, ESR Wallet or ATOM Wallet.

It is now clear that few of them did.

That was perhaps a marketing failure, but getting the attention of the crypto community is no easy trick to pull — especially now that airdrops have become quite common.

Or possibly the iron grip that ShapeShift and Changelly have on this market is very difficult to loosen.

Or maybe this was a fork too far.

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