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Sunday, Mar 19, 2017 - 23:28 SGT
Posted By: Gilbert

Trade Special

Me: ...and that concludes this EGM, wait, what's this... *whistles*. Hold the presses, my hamsters, something big has just happened in Blockchainland.

Mr. Ham: Has Satoshi outed himself?

Me: No, not quite that big... more ice for your balls? Here you go, Mr. Robo. Anyway, here it is: Bitfinex has just introduced Chain Split Tokens, which essentially allows traders to take their positions in advance of a possible Bitcoin hard fork: one Bitcoin (BTC) can now be split into a Bitcoin Core token (BCC) and a Bitcoin Unlimited token (BCU) at will, with both these tokens able to trade freely against BTC and the US dollar.

Before continuing, a brief recap on how it has come to this. Recall the ideological split between small-blockers (Core) and large-blockers, as detailed in our third AGM. Now, after abortive attempts to push the large-block agenda with Bitcoin Classic and Bitcoin XT (headed by Mike Hearn, who has since famously ragequit), fallen Bitcoin Jesus Roger Ver and Chinese mining megalomaniac Wu Jihan have joined forces to push their latest protocol proposal: Bitcoin Unlimited.

As might be guessed, Bitcoin Unlimited removes the fixed blocksize cap, and allows miners to "vote" on the blocksize limit, a mechanism billed as "Emergent Consensus". In theory, this would allow miners to neatly coordinate blocksize changes (in practice, increases), and might in fact be workable... most of the time, and in a vacuum. In reality, however, it could very well lead to runaway centralisation if minority low-bandwidth miners are continually kicked off the main fork, especially as high-bandwidth miners then exploit this, by getting a headstart on building on their own blocks.

Note that all this is before we get to the many various coordination issues, which seem to have mostly been handwaved, along with the more fundamental concern - that any plausible blocksize increases will, in the end, be inadequate in the face of true mainstream adoption. From this alone, we have consistently regarded second-layer solutions such as Lightning Network - now signalled for by Litecoin - as Bitcoin's future, going ahead.


Somebody say lightning?
(Source: pinterest.com)


As it stands, the other big black mark against the Classic/XT/Unlimited mob, is that they have shown few signs of having the requisite development chops, to take the Bitcoin project forward. While copying an existing codebase is trivial, extending it properly is another thing altogether, and Unlimited has already introduced a couple of dire bugs in its short tenure, again with scant acknowledgement of their severity.

Mr. Robo: The Unlimited side do have some valid grievances, in particular the much-vaunted February 2016 Hong Kong agreement, which appeared to form a broad consensus around a segwit-plus-2MB blockside hard fork. Cracks would soon appear, however, with a prominent Core developer proclaiming by June that it was not binding as they had no authority to represent the full dev team... and in any case, the miners have no leverage to make demands - which is what is being tested. Wu, who controls perhaps the preponderance of Bitcoin hashing power through AntPool, is understandably of a different opinion - while he concedes that users have ultimate power over the Bitcoin ecosystem, he also insists that the developers should have the least amount of influence.

With the battle lines being drawn, Unlimited have admittedly mustered a respectably-formidable lineup. As stated, Wu likely controls at least a large minority of existing hashpower thanks to Bitmain, with the commodity hardware manufacturing market once again unavoidably consolidating - think Intel/AMD, NVIDIA/AMD, etc. Of course, this is not exactly a PR coup, as the now-ancient GHash.io backlash illustrates. Other than this, Ver is rumoured to own hundreds of thousands of Bitcoins, a potent strategic reserve, as well as the bitcoin.com domain, which might confer a degree of legitimacy to some.

Me: Ugh, reminds me of those ESTA application "helper" websites that show up high on searches, and then charge a huge markup for relaying the request.

Anyway, on the other side, we have of course the Core development team, and plausibly the exchanges, given that twenty of them have undertaken to list Bitcoin Unlimited as an alt-coin, in other words, implicitly recognizing Core as the "true" BTC. To be fair, there have been a couple of takebacks by ShapeShift and Kraken, which has encouraged Wu to refer to the exchange alliance as 傻逼, along with noting that a few of the more prominent exchanges, such as Coinbase, Gemini and OkCoin, have yet to make their support clear.

And this coming not even a year from the consensus-by-Vitalik DAO clusterf**k cleanup...


And with this, an uneasy stalemate might have persisted, but then...

Mr. Robo: Bitfinex.

Me: Yep. You got to give it to them, they got chutzpah. Many outfits would have gone belly-up and declared bankruptcy in the position they were in last August, when they got hacked for 120000 Bitcoins. Instead, they sort-of-bluffed their way out of it by creating a BFX debt token - which, by the way, is trading at 98 cents to the dollar today - and opening up an equity swap. While this is kinda irregular, it does for some reason lend me confidence as regards H.L. Ham's minority stakeholding.

Perhaps encouraged by their success in that respect, Bitfinex has now created the BCC and BCU tokens. A slightly closer reading of the terms suggests they're being a bit cheeky about it, though. Firstly, the contract is settled at the end of the year, with BCU tokens becoming worthless if no fork is attempted by then... which immediately puts the Unlimited project on a clock, if the tokens gain any traction at all.

Additionally, it is apparent that the terms under which the tokens are defined, are favourable towards BCC. Even assuming that the fork takes place, the worst that happens is that BCC reverts to BTC, as per the exchange agreement. Moreover, even in the admittedly very unlikely circumstance that Unlimited gains an overwhelming majority of miner support, Core could plausibly just make their code compatible, in effect rescuing BCC's value anyway.

Basically, Bitfinex has called Bitcoin Unlimited's bluff, in one magnificent swoop - Unlimited has often claimed broad user support, and from their Internet presence, particularly in their home r/btc subreddit, this might even seem to be the case. However, as with Bitcoin nodes, user activity is an extremely gameable metric - think China's paid wumao armies, and Crooked Hillary's Correct The Record astroturfing. With BCC and BCU tokens, however, Bitfinex is forcing Unlimited's hand with the logic that, if they have real, invested, users, then they should be ditching BCC and buying BCU... and if that isn't happening, well, maybe users aren't behind them after all...

Mr. Ham: And, as it happens, they don't seem to be - BCC is trading at about four times the price of BCU right now.

所谓主动为王, 被动为寇;
主动步步占领先机, 被动处处受制于人.


Me: With this teeny development, Wu appears to have belatedly recognized that "second-rate exchanges" do pack quite a punch too. True, BCC/BCU token volume may be comparatively miniscule at the moment, but even so, it is hard to dodge the implications - that the market is leaning very heavily towards the status quo, when actual skin in the game is involved. The dilemma for Wu and the Unlimited gang here is that they don't have many good options, because what Bitfinex has uncovered, is broadly speaking, simply the truth: that the Bitcoin Unlimited faction just doesn't have nearly as much user support, as they would like to think they have.

Of course, as Wu has so considerately pointed out, there's always the nuclear option of a hostile hard fork, with Ver possibly dumping BCC into the bargain. However, as Lingham explains, this would very likely be mutually-assured destruction at best. Far too many things would have to go Unlimited's way, for them to come out of this ahead, and it doesn't help their cause that the general Bitcoin community, with good reason, defaults conservative with regards to the protocol. If nothing else, it is hard to see such a power grab being looked kindly upon by the original crypto-libertarian holders.

Mr. Robo: Funny thing is, if the main intention of pushing for larger blocks by the miners is to earn more transaction fees, it's not even obvious if it will work out that way - demand for transactions could very well be inelastic.

Me: Well, there's going to be fireworks, but I gather that the firm of H.L. Ham is on top of this exciting opportunity. Volume's very low for now, that said, and it would be best to treat this as an exotics market. Got a meeting early tomorrow morning, so see ya!

*leaves*

*hamsters look at each other*

Mr. Ham: ...eh, so what are we supposed to do again?



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Next: Freedom's Due


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The Third H.L. Ham AGM
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