Suggestions that Bitcoin - the grandparent of so-called alternative currencies - might experience a fork in the next few days have generated much comment. Reactions to the possibility that Bitcoin might split into two currenices vary from bafflement to pragmatism.
“Forks are usually bad,” says David Siegel, chief executive officer of Twenty Thirty AG, a Swiss-based blockchain innovation company . “Forks are generally philosophical bordering on political, and they create bad will among the different "camps" of the cryptocommunity.
“This obviously doesn't help the overall image of the industry,” he goes on. “Even if one fork "wins" and is called Bitcoin, it's a blow to gaining the confidence of people around the world who deserve a better monetary system.”
Nothing to fear
The Bloomberg Prophets service carried a headline stating there is nothing to fear. Author Aaron Brown then delivers a cogent argument to justify that statement. He compares and contrasts the Bitcoin experience to traditional government-backed currencies.
He observes that most of the 140 physical currencies that existed a century ago “evaporated without significant payment to holders”. Of those that have not evaporated, the British pound has lost 98% of its value and the US dollar 95%.
Even the mighty Swiss franc has lost 75% of its value, he calculates. Bitcoin enjoys much greater protection against the risks of hyperinflation, government default, expropriation or losing a war, he states.
“Forking hell...the Bitcoin split” is the attention-grabbing headline to a piece penned by Chris Skinner. Revered in a number of quarters in the world of international finance, Skinner has a winning way with words. Until it comes to the minutiae of explanation.
He sets out the issue in much greater technical detail than falls under the www.capital.com remit. Astrophysicists looking for something to while away the time waiting for a cup of coffee to be prepared might care to look here.
An email from digital currency platform Coinbase to its customers refers specifically to the user activated hard fork (UAHF) as a proposal to increase the Bitcoin block size, scheduled for 1 August (also known as, ironically, given the comments above, Swiss National Day).
UAHF breaks Bitcoin rules
Coinbase adds that the UAHF is incompatible with Bitcoin rules. If it proceeds, it will create a separate blockchain. Should that happen, Coinbase says it will not support the new blockchain or coin.
To this cryptocurrency sceptic that sounds very much like default or at the very least devaluation. This would seem to be in direct breach of one of the cornerstones of Bitcoin, that only a finite amount will ever exist.
Chris Skinner would seem to agree. He describes the suggestion as yet another sign of “how flakey the cryptocurrency market is”. Anyone investing or trading in cryptocurrency is as likely to lose their funds as keep them (unless they hold them in a secure wallet, he adds).
Migraine coming on
The ensuing technical explanations of the potential fork are migraine-inducing. Talk abounds of nodes, SegWit, 2MB, BIP 91, BIP 148, hard fork camp and other jargon. The combined effect is to elevate the notion of incomprehensibility to an entirely new plane.
When Skinner then writes that the idea is simple, the instinctive immediate reaction is to laugh. And remember one of the first and most basic rules of any investment: if you do not understand, you do not invest.
Surprisingly enough, this is a precept that he himself goes on to echo when setting out advice on how to cope with the threatened fork. Stay calm, he says, as right now the most likely scenario is that there will be no split on 1 August.
Investors can take steps to prepare. Keep coins in a self-hosted wallet such as Electreum, Ledger or TREZOR, he says. Don't receive or send payments until clarity appears. Only invest in what you understand and believe in. Only invest an amount you can afford to lose.
Mohit Mamoria's own quite separate “ultimate guide to the upcoming fork” fails to make it any easier for the lay person to grasp. But one thing that sticks out prominently is his casual observation that a transaction can sometimes take several days to be confirmed.
Like talk of a fork, this rather damages one of the claims in favour of Bitcoin and its ilk: that blockchain-based transactions settle quickly. “For the users, using Bitcoin has become slow and expensive,” he says. “Not exactly what the money of the internet should be like.”
In Bitcoin we trust???
He makes a number of other comments that specialists in hermeneutics will surely dissect and study at close quarters. These include the observation that blockchain is not just a software protocol that allows financial transactions.
It is the protocol that changes the fundamental beliefs of our species. That is a bold statement to make, but inherently flawed. When 'belief' is cited as a justification for a proposition, we are moving from the world of fact and science and ifaith and religion.
In Bitcoin we trust???