Cryptobuzz Report: No. 17
The Big News: Hard Forking Round 2 x 2!
It’s that time of year, hard fork season. Bitcoin and Ethereum are both up for potential hard forks in the coming weeks. If Bitcoin’s hard fork is anything like the last one, it just means more money in our pockets although the narrative leading up to it was that it only meant devastation. So let’s take a minute to figure out what we’re in for.
If you need a refresher on hard forks and Segwit 2x, check out Cryptobuzz Report No. 8, but in essence, most of the concerns of the hard fork did not materialize with the completely different hard fork that brought us Bitcoin Cash. But the fact is, another fork means we will have yet another version of bitcoin. If you thought explaining Bitcoin was difficult, just wait till you have to answer the question of why are there three. I can hear Peter Schiff now ranting about creating new bitcoins left and right.
Just as a reminder, Segwit2x will increase the blocksize from 1MB to 2MB. It will be enabled for bitcoin miners on Block 494,784, which is anticipated to occur sometime in November. The concerns around the hard fork are still prevalent. For one, the new bitcoin needs miners to verify the transactions. With miners already having to split between Bitcoin and Bitcoin cash, will there be enough supply for this new bitcoin. Secondly, there is already a version of Bitcoin (Bitcoin Cash) that solves the problem of bigger blocks. Plus the original Bitcoin is already using Segwit without the 2x block size. Basically, it seems very redundant and unnecessary. The biggest difference this time around is there will be no “replay protection” on this fork which is the way all previous forks have happened allowing for a clean divide into 2 chains. Instead it will be last man standing between the new 2X chain and the original chain.
There is an interesting bet being placed amongst some of the biggest bitcoin players. First off, Charlie Lee, the creator of Litecoin offered to exchange 250 of the Segwit2x Bitcoin for 250 normal Bitcoin on twitter. Then Roger Ver (one of the first advocates of bitcoin) chimed in and said “Deal!”. This quickly escalated to three other people taking the bet with Roger Ver to the point that he was willing to trade 1000 BTC ($4 million) for 1000 of the new bitcoin post hard fork. Link
(If anyone’s interested, I too will trade you 1 for 1. I will give you my Segwit2x for 1 of your original BTC.)
Now for Ethereum. Yes, our precious Ethereum, is going to fork too. But with much less dramatic results. Unlike the hard forks that brought us Bitcoin Cash and Ethereum Classic, this hard fork was planned from inception. Ethereum was not built to be a currency, rather a platform, with progressive improvements similar to iOS updates.
Ethereum has 4 planned stages: Frontier, Homestead, Metropolis, & Serenity. We are currently in the Homestead stage that was implemented back in March 2016. The next stage, Metropolis, will be broken into 2 installments, The first stage was initiated on September 18th and the second will come later with no specific date.
In the end, the Metropolis stage will include the following updates:
Proof of Stake early implementation.
Flexibility and robustness of smart contracts.
It’s important to note that ZCash’s blockchain is based on Zk-snarks, or zero knowledge proofs. Proof of Stake will change how transactions are verified. This will eventually eliminate Ethereum miners and make the overall verification process much less expensive. (Did you know Bitcoin miners spend $1.2 million every day on electricity? Link)
The other updates are important for developers in that it will be easier to create useful smart contracts. Smart contracts are the lifeblood of Ethereum, which are essentially an escrow of funds which gets activated once a particular function is done.
Obviously, there is a lot more to know about the Metropolis Update. This article does a great job of getting into the details of each feature. The only thing errant in the analysis is the claim that the Homestead update occurred in 2017 instead of 2016. He claims the update triggered the price increase from $12 to $40. It’s my opinion that the big run up was due to the announcement of the Enterprise Ethereum Alliance.
In summary, there’s nothing to worry about the Ethereum hard fork, some even predict this is very bullish for the price of ETH. On the other hand, the Bitcoin hard fork, due to its contentious nature, will bring about a lot of concern and price volatility. You should also make plans to store your Bitcoin in such a way that you own the private keys so you can qualify for the new version of Bitcoin.
The Managing Director of the International Monetary Fund says cryptocurrency has as much potential as the internet itself. It sounds like the IMF are taking cryptocurrencies very seriously. Link
Good overview of the upcoming Bitcoin forking drama. Link
Nathaniel Popper, author of the famed “Bitcoin: Digital Gold” book, delivers a great overview of Ethereum in the NY Times article. Link
Dubai government is launching their own cryptocurrency, emCash which will be acceptable forms of payment for government services. Link
Goldman Sachs is exploring cryptocurrency trading which is a complete 180 view compared to Jamie Dimon over at JP Morgan Chase. GS’s CEO, Lloyd Blankfein then voiced on twitter that he is currently neutral on bitcoin.
ICONOMI is seeking to democratize access to wealth management. William Mougayar, and others, have released their portfolios (called Digital Asset Arrays or DAAs) on top of the ICONOMI platform. If you think William is a smart guy, buy his DAA with the ticker WMX. How could this affect traditional stock pickers and hedge fund managers? Link
Last Friday, South Korea banned ICOs but the price of Bitcoin was incredibly resilient. Link
Podcast: Unchained: How to Explain Cryptocurrencies and Blockchain to the Average Person
Podcast: A16z: Why Crypto Tokens Matter
- Podcast: Investing with the Best: Understanding Blockchains
Chart of the Week
This Chart is brought to you by Chris Burniske. 80% of all the possible Bitcoin is already available. LIke Chris Burniske says in his tweet, bitcoin’s hyperinflationary days are over. And then Shapeshift’s Erik Vorhees added, “Contrast this with the US Dollar, which has its hyperinflationary days still to come.” Bitcoin disinflation + fiat hyperinflation = ???