Bitcoin

Bitcoin Hard Fork – part 2

Eric Raymond in HomeSteading the NooSpehere” says “The most important characteristic of a fork is that it spawns competing projects that cannot later exchange code, splitting the potential developer community”.

This is what is unique – a split in the developer/adopter community for competing code will have consequences to the entire eco-system, something that has not been tested so far.

There are a few pressing questions with respect to the bitcoin hard fork.

1. Firstly, why should something like “digital money” which is open source and has huge network effects fork?

2. Secondly, Who decides about the fork?

3. Thirdly, Who maintains the fork?

4. Fourthly, Which one of the forks will eventually evolve to be the “standard”? and will the other one die?

5. Fifthly, will this lead to unlocking the value of the Bitcoin network overnight?

Forking of source code and maintaining separate source code trees is as old as the history of programming languages itself and probably was the first feature implemented in a version control system. However, this is probably the first instance where fungible value is associated with source code, the instance it forks. Today this value stands close to $20 Billion.

In the next – i.e. part 3 of this series of essays – I will try to answer some of these questions . The development models there are determined by a large single leader i.e. Linus Torvalds who controls the development process with his trusted developers. with Bitcoin though there is yet to evolve such a leader – other than Satoshi Nakomoto – who went incongnito after the first release.

 

The Bitcoin Hard Fork – PART 1.

Right now, Bitcoin is trying to do an Ethereum – style hard fork. There have been many discussions around this. Here in this part 1 article I discuss why Bitcoin needs a Hard Fork.

 

  1. Bitcoin needs to scale because of problems related to block validation times and block size. Each new transaction (and there are several thousands every second) needs to be entered into a ledger after validating it, in a process known as mining – wherein a new block is created.
  2. With the many new transactions being created – the time it takes a series of transactions to enter the ledger has been increasing. This has caused third party players – such as short term creditors – validators – etc. to earn rents to fill the gap, making bitcoin’s whole value proposition of low transaction costs to be questioned.
  3. What this means is that – if someone were to immediately consummate a transaction such as paying someone else, or buying something at a store, if it takes 10 – 20 minutes for the bitcoin network to validate that transaction  -as in say – the payer has the requisite amount of money that can be paid to the payee – then a third party can lend the payee the money for 10-20 minutes at an insanely high rate of interest say 2.5% for those 10-20 minutes to consummate the transaction immediately. The third party does other forms of validations while the actual technology i.e. bitcoin mining network takes longer to validate the transaction.
  4. Another problem is with the number of transactions that can actually be put into each subsequent block to be validated. This upper limit is set to a particular number by the current bitcoin implementation. If someone were to revise this upper limit then all nodes on the bitcoin network – including the miners and the wallets will have to update their source code.

BITCOIN UNLIMITED is the proposed Bitcoin hard fork which supposedly handles this upward revision in block size. It is supposed to remove all scalability restrictions of bitcoin while making it seamless. In the next article I discuss the debate around whether to fork or not to fork and Bitcoin’s development model.