At 12:20 GMT tomorrow, Bitcoin will have witnessed the most hyped non-event in its recent history, the so-called User Activated Hard Fork (UAHF) that will give birth to a new coin called Bitcoin Cash.
Last week, a potential crisis was averted that started from rival groups – one supporting the BIP-148 User Activated Soft Fork (UASF) and the other supporting SegWit2x – threatening to delete each other’s transactions on the Bitcoin blockchain come August 1. This was averted at the last minute, and now 100% of the miners are supporting SegWit to avoid a fork.
Or so it seemed. The ViaBTC mining pool has not backed down and is going ahead with the launch of Bitcoin Cash via the User Activated Hard Fork (with big blocks and no SegWit). But unlike the UASF, this is a non-issue from a Bitcoin network point of view.
The UASF would have allowed both SegWit and non-SegWit blocks and miners to coexist on the same Bitcoin blockchain. ViaBTC’s UAHF activates nothing on the Bitcoin blockchain – it simply takes a snapshot of the Bitcoin blockchain at a moment in time and starts building a new blockchain from that starting point with a new set of rules.
Bitcoin Cash is not Bitcoin, nor is it the future of Bitcoin – it’s a clever way to kickstart a new coin and get around the problem of fair initial distribution.
In the good old days, when launching a new coin, developers would announce it on BitcoinTalk and set a date for when people could start mining. Later this became unfeasible, as it was easy for a big miner to just destroy the new coin’s history with their greater hashing power.
Some turned to merged mining, effectively piggy-backing off the security afforded by the immense hashing power of Bitcoin and Litecoin. But as the value of the coin plummeted, it led to people ignoring it, and to centralization.
It took a lot of work for a coin to become accepted, for exchanges to list them and for mobile wallets and hardware wallets to be created that supported the new coin.
Things changed a bit this year when new coins (or tokens) piggy-backed off Ethereum smart contracts, and anyone could simply use an Ethereum online wallet, point it at the smart contract address, and immediately understand those piggy-backed coins.
The problem of fair initial distribution happens when a new coin’s holdings are concentrated among its developers or early investors, in which case many users consider it unfair to buy into the new coin and enrich those people. A perfect example is the anonymous Zerocash coin, which has 20% pre-mined as a developer fund. The aversion to the 20% tax (as it were) led to the fork called Zero Classic which is exactly the same, but without the 20% developer fund.
Bitcoin Cash ostensibly avoids this issue because it doesn’t touch the existing blockchain – it starts a new alt-coin with huge fanfare and visibility, widespread acceptance by wallets and exchanges, and any Bitcoin balances at launch time are automatically duplicated in Bitcoin Cash.
Even if one does not believe in Bitcoin Cash, it only makes economic sense to at least claim it and sell it off immediately for some free money. That means that any wallet or exchange that does not support Bitcoin Cash will see an exodus of users who want this free money. Even if it is a flash in the pan, are exchanges really going to delist it after all this? Unlikely.
That said, even now – one day before launch – things are a bit of a mess in Bitcoin Cash land.
For one thing, the ticker is in flux. Bitcoin Cash tried to use BCC at first, but that is already used by most exchanges for the BitConnect Coin. So now many are referring to it as BCH. When I first wrote about it last week the name was not even known – only the name of the software, Bitcoin-ABC.
Lurking on the Bitcoin-ABC mailing list, it is obvious that things are pretty hectic there too. On Sunday night, the ABC team were contemplating a name change to Bitcoin-XBT which quickly led to one pro-UASF user registering the domain name bitcoinxbt.org before they could – never mind the fact that Kraken and many other exchanges already list Bitcoin under the XBT ticker.
In the wee hours of Monday morning, the developers were still sorting out registry keys that prevent Cash and Core running on the same machine. Obviously the development of the software is going right down to the wire, never mind the testing.
So overall, Bitcoin Cash doesn’t really pose a threat to the Bitcoin network. But that’s not to say the Bitcoin network is out of danger just yet. There are still two angles in play, one being the issue of Segwit2x to double the block size. That is still a heated debate that may reach boiling point before the end of the year.
More important is the issue of patents. One of the reasons the big-block camp opposed SegWit was because they claimed it potentially infringed on patents, and that any exchange accepting SegWit transactions could be opening themselves up to being sued. The latter is likely to become a self-fulfilling prophecy, with lawyers now going back through Craig Wright’s speeches and blog posts to see exactly how they can sue someone for accepting a SegWit transaction.