Bitcoin May Split Many Times in 2018
bloomberg.com
bloomberg.com
We use the word fork to describe the act of commandeering the head of the existing BTC blockchain and using your own miners to continue it in a way that diverges from the original chain. This can have a negative effect on the value of both chains due to inverse network effects.
We also use the word fork to describe the act of cloning a branch of code and than adding new commits on top of it to create new software. This is good since more coins increase experimentation and drive innovation and does not in any way effect the existing BTC network or its value (unless you believe we are already in a zero-sum game with cryptos where every new coin reduces BTC).
This article leads with "Some 19 Bitcoin forks came out last year -- but up to 50 more could happen this year" and then completely conflates the two by talking about Litecoin et. al. and Bitcoin Cash interchangeably.
To my knowledge, Bitcoin Cash is the only 'true' fork that survived beyond the splitting of the BTC chain, but please correct me if I'm wrong on that.
It would be scaremongering if I thought it was intentional.
Though there are several software forks based on bitcoin client implementation like Bitcoin XT and Bitcoin Unlimited.
Although I suppose at a certain point you'd get into the argument about how many changes are required to make it a new codebase even though it originally forked... but a question for another time perhaps.
https://en.wikipedia.org/wiki/List_of_Bitcoin_forks
Most forks which have no value are quickly forgotten so this might be a reliable list.
Hence, hard forks are actually much more likely to occur, at least until the inverse network effects you describe actually exist in reality. In a highly speculative market they really don't exist, or at least don't exist enough to discourage a fair bit of aggressive forking. I predict at least two hard forks in 2018.
I am working on an article that talks about the opposing incentives behind hard forks as a form of artificial scarcity. This seems to be the main objection from classical financial types, that its all virtual and you can make more at any time by forking so its worthless.
Your comment implies thoughtfulness on this topic. Do you have any good references on this from an economic theory standpoint?
I could argue that there are actually two kinds of hard forks, one where there is some change to the underlying protocol (Bitcoin Cash) or reallocation of funds (undoing the DAO hack) that, at least in the eyes of the authors, increases the utility of the new network more than the negative effect of the split. If the total network value rises then, in a rational market, it means that the utility did increase.
A second kind of fork is just a cash-grab fork. Split the bitcoin chain but don't do anything to the protocol, ala https://forkgen.tech. This is (I think) what concerns finance professionals more than forks which increase utility.
I think this is exactly correct from an economic perspective. But I think that in the heavily speculative market it will take a while for the market to actually converge into the state that you describe.
I'd argue that right now there is virtually no disincentive for doing hard forks, except perhaps for the friction entailed in getting it listed on Coinbase. If a hard fork "launches" with a low price, many speculators will simply view it as a buy opportunity, whereas if it launches with a high price, it has already achieved some level of legitimacy.
This is because hard forks that are effectively governance changes are not really purchased for fundamentals-based reasons at this point, because the governance aspects of BTC have really not been tested much to date.
I actually have in mind a few very interesting hard forks if you would like to collaborate and attempt to make some money by launching these with me in the process :) I too am interested in it from a research perspective but it's very tempting to try to "add value" by launching some important hard forks that the community hasn't thought of yet.
> except perhaps for the friction entailed in getting it listed on Coinbase
And therein lies the rub. I'd say its not only Coinbase but exchanges in general. My understanding is that even the worse of exchanges like HitBtc charge 25 BTC to list a coin.
So, if you have plans to make at least 25-30 BTC to get through the exchange doors, count me in :P
I agree with this, actually. The hard fork showed that ETH would be forcibly redistributed if the result of correct VM behavior was not what the maintainers had in mind.
So the ETH hard fork fits into the very typical pattern in human institutions of excessive centralization resulting in corrupt behavior. Most of the early adopters of ETH who lost money due to the DAO attack were essentially the political allies of the maintainers, who in turn held great sway with miners. We've recently learned that ETH mining is far more centralized than BTC.
The ETH hard fork was a nice wakeup call that even for supposedly enlightened proponents of decentralization and distributed consensus, when there is real money on the line pretty much any excuse will be acceptable for why the "theft" had to be unwound via a hard fork.
Ironically, in order for market incentives to work properly in a smart contract system, finding exploitable cases of correct (or incorrect) behavior of the VM should result in profit, or else there is simply no market incentive for the system to be secure and to behave in a predictable manner.
In order for Ethereum to have passed the institutional test imposed on it by the DAO hack, it would have had to deal with the difficult issue of victims of the attack claiming "theft" and would have had to allow the difficult lesson to be learned. Now that we know that Ethereum was a toy when the DAO hack occurred, when will it stop being a toy? Is the current fork real?
Anyway, apologies for the hyperbole, I just wanted to make the above point.
I don't think HN has direct messaging, but shoot me an email to odonnell.phil at the service that shall not be named but but in all likelihood starts with a G and rhymes with Email.
There's at least a few more. "Bitcoin Gold" and "Bitcoin Diamond" come to mind, there's also something called "Super Bitcoin". They all seems like complete trash to me but somehow they seem to have a market value
This is probably the defining comment of this age of blockchain. :-)
The story is more out of control if you hold the money in the trader. Since you had to rely on the trader to enable support for that new coin, which may happen later or not happen at all.
Coinbase eventually distributed Bitcoin Cash but I haven't heard anything about Bitcoin Gold or Diamond.
I would just move original coins to different wallet first as I'm not sure if same transaction cannot be replayed on main bitcoin chain.
You can check here what you can get for your addresses https://btcdiv.com/
This seems like a "No True Scotsman" fallacy and isn't correct unless you take liberties with the concept of "true fork" or you are making an observation about the lack of mass-scale adoption of the smaller forks.
Every protocol change in Bitcoin is in the most literal sense a "fork". There was a time at which the proposed protocol change might or might not survive the fork attempt. The community (developers, miners, holders, transactors, etc) all vote with their feet.
Yeah, this was the context I was using it in. 'True' meaning like 'survived' in any real sense.
For example bitcoin cash was forked August 1, 2017 but coinbase didn't implement it until December 19, 2017.
If people were attempting to propose improvements via forking and this were true, would that not create rather dire tax liabilities?
Say you bought into bitcoin 'original', and then it forks into bitcoin 'improved' as well. Loads of people agree that the improved version is much better and switch to it, leaving the original near worthless.
But then if this interpretation of tax rules were true you'd be left paying cap gains on the full value of the improved version, rather than the difference between original and improved at sale time. Ouch.
Really the law's going to have to adapt here if people are ever going to use crypto as an actual currency. Owing capital gains every time you order a latte is nuts.
PS: Trading cars with someone counts as 2 sales, assuming the titles change hands.
Taxation in general is not a happy event, but it is consistent in this case.
Wasn't the whole point of bitcoin that it was auditable? IF you know and want to use a fork for something, you can figure out the exact price fork has happened.
IF you don't know, you have plausible deniability.
But what is bitcoin except a database plus some math equations? By "owning" bitcoin, you have a cryptographic key which lets you do certain operations on the database. At what point does this all get abstracted far enough from real money that it becomes ludicrous to tax it?
Obviously, the US government and most cryptocurrency users have widely differing opinions on that.
This is also the exact reason why it's taxed the way its taxed. There's no way government is gonna let you build wealth without paying taxes.
Private key is surely a database password that lets you do certain operations, but that exact feature make it an asset. As long as you can buy "things" that has value with it, it's a capital you need to pay taxes on.
It's hard, but it's what it is.
But you're right, the reality is that many are using it as an investment instead, so now, I suppose, it's being regulated like one. Unfortunately, at the same time that we solve some of the problems making usage as a currency impractical (even if one of those solutions is just Bitcoin Core becoming an outdated relic), regulations treating it as an investment will hamper its adoption.
Oh well. I have faith the tech will win in the end.
If i keep it in the brokerage, without withdrawing the cash, why do i pay taxes? That sounds stupid right? Then the next thing you know, people sell each other stocks in exchange for goods.
"Plumbing service stock" on a broker, if you buy it, you get legal right to have plumbing service at your house free of charge. This way you can keep everything in brokerages. Of course there are flaws with the argument, but saying "crypto to crypto isn't taxable" ignores the fact that USD taxation happens based on USD.
PS: while i said usd, i mistakenly wrote USDT, which was very ironic haha.
I think that belief is mistaken. (1) Suppose Bitcoin has a contentious fork into two chains, say BitcoinA and BitcoinB. The supporters of each chain claim that their chain is the "true" Bitcoin. Before the split, you had 1 btc worth $10k, and after the fork, you have 1 btcA worth $5k and 1 btcB worth $5k. Which of the two chains do you owe taxes on? (2) Even if a hard-forked chain is treated as a new asset instead of a split of an old asset, it shouldn't be taxed until the user actually exercises control over it. In order to control funds on a new hard fork, generally the user must take the risky action of installing new (potentially malicious) software and importing their private keys --- this would seem to be a "substantial limitation or restriction" under 26 CFR 1.451-2(a).
Much safer solution is to craft transaction offline on a separate VM (using BCCSplitter [1] or altcoin wallet) and then posting raw transaction using altcoin's blockexplorer or yet another instance of altcoin wallet software (not containing any private keys).
If you transfer your bitcoins to new address provided by existing bitcoin wallet, chances are the altcoin wallet also has a private key to those addresses.
To be safe, you'd have to transfer existing bitcoin funds to completely new wallet. Also, for privacy reasons you would need to make as many transactions as UTXO you have, which means paying a hefty fee tens or hundreds of time depending how much you use your wallet.
Additionally, there is no need for forks to create value in coins. Coin developers also have tried something called "airdrops" where they assign some coins on a particular criteria. And using bitcoin's blockchain has been one of the favorite criteria.
Each sizable fork adds confusion, though. It might be obvious to you that Bitcoin Cash is not Bitcoin, but new adopters not so much. IN some sense the Bitcoin brand is becoming very diluted.
That said, surely we will see more forks. The Segwit2x was called off but it will be back with additional force. We might see additional 1-2 more forks with credence and re-using the name "Bitcoin" but 50? is just making up numbers.
That kind of thing will happen less and less each time a large, informed group of people leave BTC, till all you are left with is a fool's market.
I understand the idealogical reasons for, say, Bitcoin Cash arising as an attempt to bring transaction times and fees crashing down while increasing network capacity to the existing 'currency'. But when it cpmes to creating new currencoes on general, forking the existing blockchain just seems let yet more reward for existing holders, and further disincentive for the new coin to actually be used for anything.
I mean hell, here's another way for your rapidly inflating asset to maybe gain another 10% overnight! Why on earth would you ever spend any of it?
Instant, near zero cost bitcoin lightning transactions on the bitcoin network makes all other coins look lame.
This is not science fiction, it is here today. $2 segwit tx to fund the channel, as many tx's for 1 satoshi after that until I exhaust the channel.
Edit: I think many are missing the point that a fork and the original BTC blockchain are not of equal value. Maybe a more apt analogy would have been countries in the EU leaving and issuing their own currency.
""" Should it be treated as a split of BTC?
That seems incorrect and complicated. If you half the value of your BTC holdings and sell them, you will incur more gains. However, could you determine how much were short-term and long-term? The BCH would also be classed as income at this point, since it now has a value, and so will incur income taxes. Unlike stocks that split, BCH and BTC are separate digital assets that have no common markets, and will have different values going forward. """
Another fork will add ZKP privacy, new utility and new value.
Where do alts (esp non POW alts) get their value? Because people want to trade them to get more bitcoin, which has value as per above.
You can keep repeating this circa 2014 argument 'not backed blah blah', but as yet it has not gone to 0, and likely never will.