The trust fork

The trust fork

Bitcoin forks really spotlight many problems. Here we are talking about forks, in which:

  • there is a shared common transaction history
  • the cryptography is identical (in other words, the keys to the wallets in one fork will fit the wallets in the other fork too)
  • there is an identical mining algorithm (this wasn’t so for forks which changed their algorithm to withstand «51% attacks»).

Up to now, we’ve never seen global forks of this kind. For an infant market, this creates a situation in which:

  • miners barely care about the difference, they keep mining, provided incomes stay at maximum. For them things are even better
  • speculators need a safe instrument with high liquidity, volatility, and adoption – they, too, come out winning
  • for those who use cryptocurrencies for major transactions in grey economies, things are also good. When liquidity is on the up, it’s harder for states to monitor all the forks, while competition keeps commissions low (although who’s bothered about commission rates – if Bitcoin’s not being used for small-scale transactions?)

So what are the problems?

Security – it’s trickier to calculate the hashrate of a particular fork, and therefore the cost of “51% attack” (because of power migration between the forks). The pool of miners at the moment of transaction validation becomes an important issue.

For investors (and particularly for newbies) this is a bad time. It could not be clear who’s a main player, and who isn’t – or who is manipulating the markets, and so on. I’m certain this will take its toll on the bitcoin exchange rate.

Overall, investors will soon realize that an unregulated, anonymous market has no concept of what an ‘investor’ is, and the ‘store of value’ function is far from being the main one (this doesn’t include people who bought bitcoin back in 2012 🙂 ). It will be especially amusing to watch investment funds who collected money from people, without understanding a thing about the technologies.

But well, it’s a free market – which means that this was bound to happen. It will be especially interesting to see how issues of decentralized decision-making, trust, and community diversification will be handled, and what methods for valuing currencies will now be developed. What we have right now – volume of trading & market cap – are inadequate for dealing with conditions of manipulation. Although Vitalik Buterin tweeted his personal congratulations to the Bitcoin Cash team for hitting second place.

BCC has overtaken ETH
Illustration by Katerina Krashtapuk
Pavel KravchenkoCryptographer, founder of Distributed Lab