Bitcoin Wars: Cash, Core, Gold, 2X
In 30 days time it is likely that there will be 4 high profile versions of Bitcoin in existence – Bitcoin Cash, Bitcoin Gold, Bitcoin 2X and Bitcoin Core. 2X and Core specifically, are so contentious that the community in which it divides will fight tooth and nail for the right to take the name “Bitcoin”. A number of highly influential individuals will refer to Core as the true Bitcoin, whilst commercial behemoths such as Coinbase and BitPay will “follow the hashrate” and choose 2X. The 2X side – who support a hard fork to increase the Bitcoin block size to 2mb from 1mb – are remaining fairly quiet, having had their code ready to deploy for a number of months. Those on the Core side – many of whom have appended “NO2X” to their Twitter handles – are ferocious in their fight to convince others that 2X should be dropped. Larger block sizes will lead to a larger blockchain, and Core supporters argue that Bitcoin cannot remain properly distributed/decentralized if the blockchain is too big for the average user to download and store.
It is not in the economic interest of the community to have a situation where the name “Bitcoin” is used to define two entirely incompatible chains; Bitcoin Core cannot be spent on Bitcoin 2X and vice versa. Bitcoin Cash and Bitcoin Gold add to the confusion, creating entirely new blockchains that – in the case of Bitcoin Cash – “differentiate” themselves with a logo that is a few degrees tilted from the original. Bitcoin Cash is also an unspendable coin; despite using the word “cash” and sharing the name “Bitcoin”, very few merchants accept it. Yet this coin which cannot be spent, has unreliable blocktimes and <10kb block sizes (despite 8mb capacity) has a market capitalization of $7,000,000,000 at the time of writing. It is the 4th largest cryptocurrency in the market. It begs the question - how much of that $7bn market cap rests in its use of the brand "Bitcoin"?
Of course there are plenty of individuals and businesses who stand to gain from leveraging an existing coin’s brand. Last year, Barry Silbert’s Grayscale established the Ethereum Classic Investment Trust (initially and controversially named the Ethereum Investment Trust) – capitalizing on the contentious hard fork which spawned the new coin “Ethereum Classic” in July 2016. Unlike the name suggests, Ethereum Classic has virtually nothing in common with Ethereum. Ethereum Classic cannot be spent at stores which accept Ethereum and it cannot be used to interact with Ethereum smart contracts. Using the name “Ethereum” is painfully misleading, but its proponents would argue it is the “true Ethereum”.
It may come as little surprise then that Grayscale are a strong supporter of the SegWit2X hard fork. The company is also responsible for the Bitcoin Investment Trust (BIT), an Exchange Traded Product which stands to gain financially from a Bitcoin chain split. It was also noted that the BIT filed for rule changes with the SEC that would allow them to follow the chain of their choosing – Core or 2X, presumably whichever was most profitable. The proposal was called out by Bitcoin developer Matt Corallo in his comments to the SEC in September, declaring that this flexibility in which chain to follow could lead to enormous confusion for investors.
Roger Ver and Jihan Wu, two other well known personalities in this space, have inexplicably backed Bitcoin Cash; citing the “original vision of Satoshi Nakamoto” as a core principle behind their adoption. Political rhetoric aside, the real reason behind Bitcoin Cash seems less of a humble Bitcoin vision, and more about the cash. And let’s not forget, there is enormous cash to be made. Incentives are wildly misaligned between coin users and creators and this gap will only become more exploited as the market expands.
Despite the short term confusion that Bitcoin Cash and Bitcoin Gold may bring (case in point “BTC Gold” – not Bitcoin Gold – has jumped 1500% in the last 7 days), it seems that over the long run these two coins are destined towards relative decline. More worryingly however, is the brigading of “NO2X” on Twitter and Reddit which could be harmful to the ecosystem as a whole. If 2X should be deemed Bitcoin by the economic majority, then will those opposing – who have committed foolhardy to fighting the fight – be willing to concede? If the owners of the subreddit /r/bitcoin and their vocal NO2X subculture cannot come to terms with a 2mb blocksize, then will Bitcoin’s largest (and arguably most important) community forever represent a coin that is – for the rest of the ecosystem – not considered to be Bitcoin? Whichever coin takes the name, one side of the fork will be feasting on humble pie; or – perhaps more likely – they will continue down the path they so vehemently fought.