Will The Real Bitcoin Please Stand Up?

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Includes: BTC-USD, COIN, GBTC
by: Heidi Tait

Summary

This year alone there were five popular Bitcoin hard forks.

Forking can be considered friendly or malignant to the original Bitcoin.

Forking could result in an amalgamated basket of cryptocurrencies for wide general use.

Anyone who follows Bitcoin news has heard multiple times over the last year about hard forks. The news out there varies from very negative to very positive about these events. From my reading it is apparent that there are two types, friendly forks and malignant forks. The early hard forks were created by people who desired to compete with the original Bitcoin economy and the friendly forks are being seen as a way to scale up Bitcoin. Friendly or malignant, any fork has the possibility to be either, depending on your own personal stance within the crypto community

A few months ago, as Bitcoin approached the $5,000 mark and I started to really look at the charts and the behavior behind price movement. I imagined a Bitcoin economy where the original Bitcoin resided at the top of the family tree and, well you know what happens from there. You can picture friendly forks as new generations, containing the same genes, I suppose it would be more like the family tree of a lab rat (basically clones). The major difference being, that the forked edition contains all of the history from before the split block. All in all, this means that the fork contains all of the original ledger plus new blocks that the original chain will not recognize, to be added after the split. If you hold Bitcoins, then you are entitled to whatever the amount of the new or altcoin would equal in your Bitcoin in addition to the Bitcoin that you already have.

In principle this should work to dilute the value of grandfather Bitcoin, but it has not so far, in fact the forks have brought more buyers into the market, as forking provides means of scalability for the crypto currency. The fact that it can be scaled in this way demonstrates that the Bitcoin economy could replace the fiat one that we live under now. Something that many people don’t understand about valuation here is how different the structure of blockchain is compared to that of most commodities. As far as something like gold or oil is concerned, there are very few people that affect price and price movements in comparison to the number of people that use the commodity. With Bitcoin, the tables are turned completely in that every person involved in the use of acquiring or transacting in Bitcoin has an effect on price that is proportional to the amount of coins being used at that moment. As mining has become more and more centralized, fees and prices are driven up due to fierce competition for funds by large mining pools. Another big driver of Bitcoin prices is the fact that there are few ways to access the new altcoins other than to purchase Bitcoins with fiat then purchase the altcoins, aside from mining the altcoins yourself. It will be interesting to watch what happens to Bitcoin prices as more exchanges begin to accept the altcoins. Another point as to why money continues to enter the sector is that it is not necessarily easy to spend Bitcoins due to fees and lack of infrastructure, therefore most people involved use it as more of a store of value than a method with which to do business. Price is currently at a hiccup point I proposed in an earlier article, where after it should rise a bit above 10K and have a nice pullback. I proposed that it only pulls back into the $8,000-$9,000 area, but rethinking the charts and the dangers that lie ahead $5,000 also is a possibility.

Back to forking, below is a chart of the most popular forks to date. The most recent forks have been considered to be friendly in nature, as they are not a group of people attempting to end or take over the market, they are simply working to add value and scalability. Forks are originally thought of as attacks on the entire system itself, in order to "beat" Bitcoin one would have to have more processing power than the whole current Bitcoin community in order to run ahead and take it down. At this point, the community is so large, the only way this could happen is though quantum computing. While this is a danger, breaking the current Bitcoin economy could be extremely deleterious for anyone attempting to achieve an agenda beyond killing Bitcoin. Remember who the most vested interests are here.

I created this chart on tradingview.com

The Bitcoin XT fork was implemented on 8/15/2015. Its proposal was widely thought to be an attack on the original Bitcoin. Many pundits that misunderstood the reasoning behind the fork called it a civil war and denounced it as being negative to the community. Suffice it to say, it never became very popular. The idea was to increase the block size to eight MB so that more transactions could be made in a day. Sadly, this fork was not taken by most in the community as helpful, but rather competition. Currently the price of this offspring is at 1 x 10-5 with the last transaction on 11/3, according to cryptoinchats.com. The crypto currency continues to decline in usage nodes as time progresses.

Bitcoin classic: Another fork implemented to solve the limited number of transactions able to be made with the original block chain. As this development came about, it was better accepted by the Bitcoin community as a solution to a problem, rather than an attack on the original idea. It received support from investors and miners, including Coinbase, Bitstamp, Roger Ver and Gavin Andersen. There is no current pricing on the fork, because developers have shut it down in favor of working on Bitcoin cash. Operations ended 11/10/2017. Notice on the chart we have a pullback in price after the fork takes place. This is more or less due to the loss of some larger players in Bitcoin moving over to Bitcoin classic. The drop is then followed by an increase, partially due to the fact that Bitcoin classic is not as easily transactable with fiat as Bitcoin. This is less of a factor at the beginning of 2017 as it has now become.

Bitcoin unlimited was taken as a bit more of a threat by the community and was not as well supported and mined. Due to the overall lack of interest, the code tends to be buggy, with nodes crashing and numerous attacks. its high was $874 in September, as interest has continued to dwindle, and the price now sits at $126.71.

Bitcoin Cash There are some real heavy hitters supporting this fork, they include, Roger Ver, Jihan Wu, Rick Falkvinge, John McAfee, Kim Dotcom and Gavin Andersen. As mentioned earlier, the developers from Bitcoin Unlimited moved to Bitcoin Cash, because they saw it as a better solution. This solution uses larger block sizes. This means that more transactions can be processed in a day. Bitcoin Cash is largely thought of as a friendly fork and coin split. If you talk to either side on the issue they are deeply divided. Part of the reason for the split was that this group saw block sizes as a larger problem than security. This hard fork has so far had the most support behind it and prices continue to remain not far below all time highs set on 11/12/2017. Today upon writing, price is at $1715.52. Bitcoin cash has gained popularity since its release because of the support it has behind it and the blocks are not yet full, so fees for transacting have not been driven through the roof yet.

Bitcoin Gold is an interesting coin split or fork. Original Bitcoin and all the forks up to this point are mined best using ASIC processing technology. This has brought large monetary interests into the space and made mining by single entities completely impossible. The developers of Bitcoin Gold have redirected mining processes to any common GPU (graphics processing unit) - the belief here is that Bitcoin Gold will be the new decentralized Bitcoin. As we speak, Bitcoin Gold sits at $361.26. I feel that the change from ASIC to GPU should stoke a good amount of popularity for the altcoin in months to come. I'm not sure how sustainable that will be, it will need to get some larger players behind it before it can remotely be considered competition for the original Bitcoin.

Because of the release dates, one would think that Bitcoin Diamond and Bitcoin Gold were instantiated together, but they are not. Bitcoin Diamond is all about security. The developers here have figured out a way to encrypt wallet balances and transaction amounts when interacting with the blockchain. This makes transaction more secure to peering eyes. The blocks are large, like the ones on Bitcoin Cash, and this will cut down on network congestion. This coin also is minable by GPU as well as ASIC technology, but the website does not promote the mining of it to the average Bitcoin Diamond purchaser. While many people in the community see this as a good current solution to an overloaded network and high fees, it is not seen as a permanent solution.

The success of any given fork appears to be driven by the amount of support it has out of the gate. The friendly forks or coin splits have not been around for long - they are seen by some as a threat to the original Bitcoin and by others as a better solution to the major issues with Bitcoin. As someone sitting on the outside of the crypto development community, I'm not biased one way or the other. For the time being I don’t see that any one solution will easily overtake the original Bitcoin. As far as Bitcoin pricing is concerned, anything can happen from here. It is essentially experiment after experiment. The reason that the original Bitcoin has lasted so long and become so popular is the integral belief in it as an eventual monetary system in the community. As we move forward, it will become harder and harder for large money interests to profit off Bitcoin only mining farms. I see forks continuing to occur and farms using continuously flexible algorithms which will allow them to flip between the most profitable coins at that point in time. This will allow Bitcoin prices to stabilize against cloned and augmented versions of itself. Because of the way human psychology works and the inability of small underfunded groups to have much influence on well-funded groups of people, it is highly likely that the crypto world will dilute itself beyond repair. It is my feeling that the best thing to do at this point in time would be to develop the current forks to the point that they offer Bitcoin prices some competition. This will stabilize prices, bring fees down and allow infrastructure out in the "real" world to be built for use of the coins. As with all things new, we will just have to wait and see what the future brings for the brave new world of crypto currencies.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.