Bitcoin Is At An All-Time High, But Is It About To Self-Destruct?
(Dash mentioned)
https://www.forbes.com/sites/lauras...ut-is-it-about-to-self-destruct/#2c855a79cb31
Bitcoin Is At An All-Time High, But Is It About To Self-Destruct?
Laura Shin,
CONTRIBUTOR
Captions
The bitcoin price has been on a tear recently, more than doubling to about $2,900 over the last three months. (It didn't hurt that Sunday, the popular Tim Ferriss podcast released a two-and-a-half-hour episode on the subject.)
But its meteoric rise belies a fact apparent to anyone active in the space: The bitcoin community is at war with itself and at greater risk of splitting apart than ever in its history. Already, the impasse has been a drag on its value.
The power struggle — over the seemingly simple question of how to upgrade the network to handle more transactions — is pushing fees so much higher that, for certain types of transactions, bitcoin is nearly unusable. Transactions that should take 10 minutes are taking days or not going through at all, and the average fee costs $4.75 — a negative development for a network whose proponents once touted the fact that it was cheaper than Visa.
Even more foreboding is the fact that, even as new money flows into crypto assets, businesses are pivoting away from bitcoin to build on other blockchains. That means countless transactions that could be processed with bitcoin, pushing up its price, will now take place on other blockchains, instead boosting their prices. Accelerating that trend is the fact that non-blockchain companies are now creating their own cryptocurrencies — but not on bitcoin. For instance, Kik, which plans to launch a new cryptocurrency called Kin, is building it on Ethereum. The factors above combined with the full speculative frenzy in non-bitcoin tokens and the civil war in bitcoin finally pushed its market cap as a percentage of all cryptocurrencies below 50% for the first time a few weeks ago; for years it had been at 80-90%. It hasn’t recovered since.
Noting that the community has been trying to avoid certain technical upgrades that run the risk of causing a “split” that would create two versions of bitcoin — one with a higher value and the other lower — Mike Belshe, chief executive officer of BitGo, a cryptocurrency security company that supports bitcoin, says that because of the inaction, “In a lot of ways, bitcoin already has split. A lot of people aren’t using bitcoin anymore. People are moving their coins out of bitcoin, converting it to another coin.… If bitcoin were performing and executing on all cylinders two years ago and meeting the demands of all its constituents, would we have these other coins at all? Bitcoin had all the market share. Today it doesn’t.”
Shutterstock
Why Bitcoin Is Unlikely To Find A Solution Soon
To understand what has escalated the two-and-a-half-year-long controversy into all-out war, one first needs a little background in the game theory of bitcoin, which I outlined in this previous article. As I wrote then, “The magic of bitcoin has been the ability for various players with opposing interests to engage in a system that has so far led to an optimal outcome for all of them.” As one would expect, however, when groups with opposing interests have to interact with each other, tensions arise. While, in previous open source projects, parties with opposite aims could part ways, in bitcoin, neither wants to leave what has so far been a highly lucrative game for each of them. (Hear two long-time bitcoin players explain this in my podcast.) While bitcoin has many constituencies, one of the most important are the developers, who are like the designers of the game. Another crucial group are the entities that run the bitcoin network on their computers (called miners) who are sort of the operators of the game.
A year and a half ago, in what became known as the Hong Kong agreement, some of the developers/game designers and the miners/game operators forged an agreement on how to enable more transactions on the network at any given time. It had one element that the developers wanted, called SegWit, and an additional element that the miners wanted, called a 2MB cap. (SegWit organizes transactions more efficiently, enabling more on the network at any given time, while increasing the cap from 1MB to 2MB just lets more in even if they aren’t organized more efficiently.)
After that agreement, the developers/game designers as a whole disavowed the agreement, saying certain individuals but they as a group had not approved it. They then proceeded only to prepare the design change that they wanted — SegWit. However, they need the miners/game operators to run it, and one miner in particular, Bitmain, which also manufactures mining equipment and is headed up by Jihan Wu, has held its implementation hostage, trying to force the developers to also raise the 1MB limit.
Last month, 58 companies across 22 countries brought together by one of the biggest investors in the space, Digital Currency Group, led by Barry Silbert, forged a compromise that was, essentially, the Hong Kong agreement all over again, just with a fresh timeline. However much economic might may lie behind what is now being called the New York agreement, none of the core developers have signed on. Bitcoin core developer Eric Lombrozo says Silbert’s “heart is in the right place,” but that ultimately, “I don’t think the New York agreement is way to go about these things at all.” This past weekend, Lombrozo finally wrote a Medium post in which he declared, “At this point I have zero trust left for Jihan Wu and Bitmain.”
While the developers and miners still haven’t found a way forward, this brings us to the third, and most important group in the game theory of bitcoin: the users. This group has the ultimate control in bitcoin. If bitcoin split into two coins, the users would determine which one is the “real” bitcoin simply by choosing to hold and transact more with one of them, thereby boosting its price. However, the bitcoin developers and miners have no way of determining in advance which version of the coin users would support. While one might say that the 20.5 million wallets represented by the companies who signed the New York Agreement represent a significant percentage, for now, some users who support the core developers and are angry that Bitmain has thwarted the adoption of SegWit are aiming to wrest control from the miners. They are attempting a “user-activated soft fork,” a sort of declaration of war on the miners. A video about UASF that featured bitcoin “maximalist” Tone Vays — someone who believes that in the future, there will only be one dominant blockchain, and it will be bitcoin — begins with a shot of him standing in the woods wearing a flannel shirt and a camouflage UASF baseball hat, a Bitcoin bandana masking his face except his eyes, his arms crossed over his chest and a machete raised in one hand and an axe in the other. While more ideologically driven bitcoin users may support this idea, it’s not clear whether they will garner the support necessary to pull it off. It currently has only 22% support from companies in the space and a deadline of August 1.
.....>
(Dash mentioned)
https://www.forbes.com/sites/lauras...ut-is-it-about-to-self-destruct/#2c855a79cb31
Bitcoin Is At An All-Time High, But Is It About To Self-Destruct?
Laura Shin,
CONTRIBUTOR
Captions
The bitcoin price has been on a tear recently, more than doubling to about $2,900 over the last three months. (It didn't hurt that Sunday, the popular Tim Ferriss podcast released a two-and-a-half-hour episode on the subject.)
But its meteoric rise belies a fact apparent to anyone active in the space: The bitcoin community is at war with itself and at greater risk of splitting apart than ever in its history. Already, the impasse has been a drag on its value.
The power struggle — over the seemingly simple question of how to upgrade the network to handle more transactions — is pushing fees so much higher that, for certain types of transactions, bitcoin is nearly unusable. Transactions that should take 10 minutes are taking days or not going through at all, and the average fee costs $4.75 — a negative development for a network whose proponents once touted the fact that it was cheaper than Visa.
Even more foreboding is the fact that, even as new money flows into crypto assets, businesses are pivoting away from bitcoin to build on other blockchains. That means countless transactions that could be processed with bitcoin, pushing up its price, will now take place on other blockchains, instead boosting their prices. Accelerating that trend is the fact that non-blockchain companies are now creating their own cryptocurrencies — but not on bitcoin. For instance, Kik, which plans to launch a new cryptocurrency called Kin, is building it on Ethereum. The factors above combined with the full speculative frenzy in non-bitcoin tokens and the civil war in bitcoin finally pushed its market cap as a percentage of all cryptocurrencies below 50% for the first time a few weeks ago; for years it had been at 80-90%. It hasn’t recovered since.
Noting that the community has been trying to avoid certain technical upgrades that run the risk of causing a “split” that would create two versions of bitcoin — one with a higher value and the other lower — Mike Belshe, chief executive officer of BitGo, a cryptocurrency security company that supports bitcoin, says that because of the inaction, “In a lot of ways, bitcoin already has split. A lot of people aren’t using bitcoin anymore. People are moving their coins out of bitcoin, converting it to another coin.… If bitcoin were performing and executing on all cylinders two years ago and meeting the demands of all its constituents, would we have these other coins at all? Bitcoin had all the market share. Today it doesn’t.”
Shutterstock
Why Bitcoin Is Unlikely To Find A Solution Soon
To understand what has escalated the two-and-a-half-year-long controversy into all-out war, one first needs a little background in the game theory of bitcoin, which I outlined in this previous article. As I wrote then, “The magic of bitcoin has been the ability for various players with opposing interests to engage in a system that has so far led to an optimal outcome for all of them.” As one would expect, however, when groups with opposing interests have to interact with each other, tensions arise. While, in previous open source projects, parties with opposite aims could part ways, in bitcoin, neither wants to leave what has so far been a highly lucrative game for each of them. (Hear two long-time bitcoin players explain this in my podcast.) While bitcoin has many constituencies, one of the most important are the developers, who are like the designers of the game. Another crucial group are the entities that run the bitcoin network on their computers (called miners) who are sort of the operators of the game.
A year and a half ago, in what became known as the Hong Kong agreement, some of the developers/game designers and the miners/game operators forged an agreement on how to enable more transactions on the network at any given time. It had one element that the developers wanted, called SegWit, and an additional element that the miners wanted, called a 2MB cap. (SegWit organizes transactions more efficiently, enabling more on the network at any given time, while increasing the cap from 1MB to 2MB just lets more in even if they aren’t organized more efficiently.)
After that agreement, the developers/game designers as a whole disavowed the agreement, saying certain individuals but they as a group had not approved it. They then proceeded only to prepare the design change that they wanted — SegWit. However, they need the miners/game operators to run it, and one miner in particular, Bitmain, which also manufactures mining equipment and is headed up by Jihan Wu, has held its implementation hostage, trying to force the developers to also raise the 1MB limit.
Last month, 58 companies across 22 countries brought together by one of the biggest investors in the space, Digital Currency Group, led by Barry Silbert, forged a compromise that was, essentially, the Hong Kong agreement all over again, just with a fresh timeline. However much economic might may lie behind what is now being called the New York agreement, none of the core developers have signed on. Bitcoin core developer Eric Lombrozo says Silbert’s “heart is in the right place,” but that ultimately, “I don’t think the New York agreement is way to go about these things at all.” This past weekend, Lombrozo finally wrote a Medium post in which he declared, “At this point I have zero trust left for Jihan Wu and Bitmain.”
While the developers and miners still haven’t found a way forward, this brings us to the third, and most important group in the game theory of bitcoin: the users. This group has the ultimate control in bitcoin. If bitcoin split into two coins, the users would determine which one is the “real” bitcoin simply by choosing to hold and transact more with one of them, thereby boosting its price. However, the bitcoin developers and miners have no way of determining in advance which version of the coin users would support. While one might say that the 20.5 million wallets represented by the companies who signed the New York Agreement represent a significant percentage, for now, some users who support the core developers and are angry that Bitmain has thwarted the adoption of SegWit are aiming to wrest control from the miners. They are attempting a “user-activated soft fork,” a sort of declaration of war on the miners. A video about UASF that featured bitcoin “maximalist” Tone Vays — someone who believes that in the future, there will only be one dominant blockchain, and it will be bitcoin — begins with a shot of him standing in the woods wearing a flannel shirt and a camouflage UASF baseball hat, a Bitcoin bandana masking his face except his eyes, his arms crossed over his chest and a machete raised in one hand and an axe in the other. While more ideologically driven bitcoin users may support this idea, it’s not clear whether they will garner the support necessary to pull it off. It currently has only 22% support from companies in the space and a deadline of August 1.
.....>
Last edited:
