Put a Fork in it. Contentious Hard Fork is  Dead

The blog post this morning by a group calling itself the Bitcoin Roundtable composed of some prominent bitcoin businesses, exchanges, wallets, miners, and mining pools, is a powerful statement that Bitcoin will impose decentralization.

This statement almost all but eliminates the likelihood of Bitcoin Hard Fork for 2016 and perhaps beyond.

Below the most crucial points of the statement;

We think any contentious hard-fork contains additional risks and potentially may result in two incompatible blockchain versions, if improperly implemented. To avoid potential losses for all bitcoin users, we need to minimize the risks. It is our firm belief that a contentious hard-fork right now would be extremely detrimental to the bitcoin ecosystem.

We must ensure that future changes to code relating to consensus rules are done in a safe and balanced way. We also believe that hard-forks should only be activated if they have widespread consensus and long enough deployment timelines. The deployment of hard-forks without widespread consensus is dangerous and has the potential to cause trust and monetary losses.

Rational actors are realizing that a Hard Fork implies leaving the protocol for a new one, and you cannot attempt this without a high level of certainty that you are bring along the entire network with you or you run enormous economic risk.

The continued failure of so many to attempt to fork the protocol is a positive event.  Bitcoin today is almost impervious to internal or external political theft. There are few assets in the world today that can make such a claim.

I will make a note however that you cannot call for consensus, when it comes to a hard rule change.  While this maybe a highly abstract point, even calling for someone to “come to consensus” implies that they must agree with your point of view.

In Bitcoin the only agreement all participants make is a self evident one, they agree to use the protocol and its rules today.

Consensus in a decentralized political system is something that arises, it cannot be imposed or coordinated. Either there is consensus or there is not. This is why hard rules changes are almost impossible to implement in the manner which many have been attempting, by trying to coordinate a sudden network change, or trying even to using the threat of majority hashing to do it.

No matter how benevolent or innovative this change is Bitcoin is anti-change, anti-political because that is what makes Bitcoin and this is what truly secures Bitcoin.

As such the approach to future changes to Bitcoin must one that focuses on working within the existing rules and  one where a hard rule change if it ever comes will be the result of organic deprecation over an extremely long time horizon.


For the full statement  A Call for Consensus — Medium


If you are still under the impression that Bitcoin “refuses” to innovate or some participants seem to be dragging their feet, it is because you are viewing Bitcoin through the lens of the existing world paradigm, and Bitcoin requires a new approach.

Please read:

Why a Hard Fork should be fought, and It’s Not Evil To Discuss

Hard Fork risks and why 95% should be the standard

Is the contentious fork debate impacting Bitcoin’s price?

Image Source: banksworstfear.com

Watching current events with negative interest rates, gold rising, and world economies on the brink, one can’t help but wonder, where is Bitcoin?

It would seem that 2016 is offering the perfect confluence of events for Bitcoin to take its place on the world stage of global assets.

The Bitcoin network has been in continuous operation for 7 years, a Bitcoin mined in 2009 can be perfectly traded in 2016.  Bitcoin’s issuance rate, its block reward of 25 coins to miners, will be cut in half some time during the year.  Gemini a Licensed Bitcoin exchange has come online with expectation of offering institutional investors access to Bitcoins. China’s collapsing economy and collapsing currency would seem to provide a ready audience desperate to secure part of their wealth with an alternative asset like bitcoin.  It seemed that Bitcoin was showing signs of exiting its long bear market briefly touching $500 last year in the early days of November. Yet since that brief rally bitcoins performance has been ambivalent to say the least.  Despite the fact that worldwide trends are conducive to a rising bitcoin price.

There have been a series of events however that could be viewed as diminishing Bitcoin’s claims of being a immutable and secure store of value safe from the prying hands of desperate governments.  Primarily Bitcoin’s current debate which has flared into a civil war.  A war over which direction it should take, the current development process offered by Bitcoin Core developers or an alternative process offered by Bitcoin Classic that is based on a hard fork of the protocol.

Below is our subjective assessment of key events in the Bitcoin Forking process with the closing price of Bitcoin on Bitfinex

  1. December 7th Bitcoin Scalability Road Map Posted
    Bitcoin Price $422.00
  2. December 19th Bitcoin Road Map support is posted 
    Bitcoin Price $437.52
  3. January 7th Bitcoin Core Segrated Witness testnet live
    Bitcoin Price $454.00
  4. January 9th Bitcoin Classic announced
    Bitcoin Price  $449.59
  5. January 13th Gavin Andresen posts support for Bitcoin Classic
    Bitcoin Price $429.25
  6. January 14th Mike Hearn infamous quit post
    Bitcoin  Price $359.16
  7. January 22nd Bitcoin article is published showing that some miners are concerned about a PoW fork of Bitcoin and may not support Bitcoin Classic.
    Bitcoin Price $385.57
  8. February 5th Bitcoin Classic Beta 2 Binaries released   and Gavin Adresen posts on why classic will use a fork of 75%
    Bitcoin Price  $373.75

Now it is a dangerous path to select events and try a determine some causation to the price of an asset.  However it appears that the fork debate because it introduces uncertainty to bitcoin’s future is having a suppressing effect on the price.  Particularly when one considers that almost 3 years ago a far smaller Bitcoin economy had a market cap that was double the current market cap.

Proponents of a hard fork now approach will contend that Bitcoin’s price is representative of a market that does not believe Bitcoin can scale. They believe that continuous delay in increasing the blocksize is preventing Bitcoin from growing and attracting new users that will drive an increase in price.

However if that was the case the price should be responding to each future development that supports a fork bitcoin and in fact the opposite is happening. It appears that Bitcoin price was in a more positive trend just after the Bitcoin core road map was presented.

Additionally Ethereum which is considered to be the only true credible alternative to bitcoin has risen from a price of just 90 cents at the start of the year to almost $3.20, while Bitcoin debates a hard fork.


As discussed in Hard Fork Risks as Bitcoin gets closer to a contentious fork the price of bitcoin will continue to decline as investors flee all the potential risks both short term and long term that will be introduced to Bitcoin. So far the continued poor performance of the price of Bitcoin continues to reinforce this thesis.  Like a corporation fending of a hostile takeover the Bitcoin economy will be fractured and damaged by a contentious hard fork.  With the real possibility of triggering a full fork into two competing protocols.





Hard Fork Risks and Why 95% Should be the Standard.


There has never been a hard fork of Bitcoin, as most would define it, where the entire network needs to coordinate a protocol update at the same time.  The closest Bitcoin came was in 2013, due to an unexpected software error and it caused significant disruption, and in 2012 where the protocol made a backwards incompatible change but it only affected clients over 2 years old which as far as developers could tell were not in use.

However a contentious hard fork has never been attempted, which is any fork where less than 95% of the network supports the rule change. A fork of this type could provide major instability to Bitcoin and undermine its unique value proposition.

Whether the fork, is Bitcoin XT, Bitcoin Classic, or even just BIP 102 which calls for a increase to 2MB. Bitcoin must set a high bar for consensus rule changes, for one simple reason. Bitcoin’s existence is based on the belief that it is an immutable store of value. If you do not have confidence that a Bitcoin today will be a Bitcoin tomorrow that economic decisions you make today will hold over years even decades. Then why hold Bitcoin, what is it going to offer except the same empty promises made by other political-financial systems.

Miners securing of the network, the Bitcoin cap fixed at 21 million, and its current large network effect represented by its daily transaction volume and global acceptance all contribute to Bitcoin’s value but these things are only possible because of the decentralized consensus Bitcoin imposes on participants.   Strip away Bitcoin’s decentralized nature and Bitcoin offers no unique value proposition as a payment network, a store of value, or even its person 2 person nature.  Without decentralization all of Bitcoin’s features are open to change.  That is the reality that a Hard Fork brings, it is difficult to argue that a hard fork for one change, does not imply there will ever be a hard fork for another.  The fact is a change of the rules even minor, implies a new system where all participants must rethink their economic position within, and with some winners and some losers.

If 51% of the hashing power was used to conduct a double spend  it would be viewed clearly as an attack on the network.  And so should a 51% fork to change the rules.  If a group can coordinate a rule change to their benefit which the network in unison does not support even if it is a small minority, that is an attack.  It is assumed that while 51% of the mining power can change the rules, they will probably not get the support of the economic majority, and they would invalidate the value of their Bitcoin investments and future rewards.  This risk of self harm is what is believed to keep all participants honest. However raising the threshold to 75% as many keep proposing is still dangerously low, and now blurs the picture of whether it is an economic attack or consensus. Couple this with the fact that voting in bitcoin via miner signaling means nothing in terms of actual implementation since votes are not binding.

This low threshold implies at a minimum 25%  of miners must accept a change that they may view as economically harmful this does not even consider what the economic participants may want since Bitcoin has no way to determine this. Even if just 25% of the Bitcoin population is against the change this would be a significant percentage when discussing a $7 billion network.

Consider that the African American population of the U.S. is only 13%, and no one would question their position as a minority with a significant economic and social stake in the United States.  While they live in a democracy where majority rules there is no doubt that their interests must always be taken into account.  This makes it all the more concerning in Bitcoin’s case because Bitcoin is not a democracy but a consensus system. The rules are set and it is expected that to change them you need the entire system to agree.  To dismiss 25% of Bitcoin as some obstinate hold outs that just want to impose their will for no reason is irresponsible, short sighted and brings into question Bitcoin’s claim of decentralization.


As we discussed in Why a Hard Fork Should Be Fought.

Regardless of how altruistic B claims their intent is, regardless of whether B believes that their solution will bring peace on earth, and caviar dreams and limousines to all, one has to assume in a decentralized system that all participants act out of self interest first, and if one party sees no reason for a consensus rule change and the other party does then more than likely the majority party is looking to increase its benefit at the expense of the minority.

As a result, it is a very real possibility that a contentious hard fork (<95%) will be viewed by many economic participants as a bad sign for the future safety of their investments.  We have seen no positive response from markets to recent proposals to hard fork bitcoin contentiously .

As we approach the likely hood of a contentious hard fork there is a real possibility of instability arising in various forms.

  1. Drop in Exchange Volume: The closer we get to a contentious hard fork, transaction volume and exchange volume could fall as coins are withdrawn to user controlled wallets.   Without clear certainty what the results of a fork will be, users will have an incentive to hold their own coins until the uncertainty is resolved.   Similar behavior is exhibited by  financial markets in anticipation of a major Central Bank decisions.
  2. Drop in Bitcoin Value:  With the uncertainty of a hard fork looming, investors may move to fiat or alternate currencies during this period of high risk.
  3. Rethinking of what Bitcoin is: Long term there will be a revaluation of Bitcoin’s claims of stability and immutability. With a new standard of 75% for forks and centralization of mining in bitcoin, 3 pools contribute to 65% of the hashing power, can one still claim Bitcoin is insulated from the flaws of fiat currency where a majority can be swayed to make changes to the system.
  4. Bitcoin 2.0:  Assuming a low threshold hard fork there is a real risk that a percentage of Bitcoin is actually being kicked off the Bitcoin Island. If we assume every participant acts in their self interest, participants who reject a hard fork do so because it against their economic interest. They maybe motivated to fork to an alternate protocol.  At 6-7 Billion dollars there is significant incentive to create an alternative protocol that may provide a better long term return on investment if it can claim greater decentralization.  Exchanges will have every incentive to run a second Bitcoin and in the end what would happen is the economic interests of the “majority” could be permanently damaged.  A “winning” Bitcoin fork would be left competing with a smaller coin which would position itself as the more decentralized “true” Bitcoin.  This would put the “majority” coin in the position of defending its tactic of kicking out a minority by using a low threshold fork that only needs the support of a handful of mining pools. Mining pools that may directly benefit from ever increasing block sizes.
  5. Fork Day could be a disaster.  As mentioned Bitcoin has never performed a contentious hard fork in its history. If one looks at Bitnodes which is not a 100% view of active nodes many nodes still run versions of the Bitcoin Core software which is several releases back. Only 45% of the nodes run current versions.   BIP66 was a soft fork that used the 95% threshold trigger and resulted in some serious unforeseen circumstances over what was supposed to be a modest change.   A 75% triggered fork, with only a 30 day window to upgrade a global network, poses a real threat of encountering unforeseen problems that once again will bring into question Bitcoin’s stability.


Humans beings have very short-term memories and so the thefts of the past are quickly forgotten. It is why Bitcoin is really a minority attempting to fork from the current economic system.   Many “Bitcoiners” have a vivid understanding of economic history, of men voting for their hamburgers today and pushing the bill off for tomorrow.    This is why Bitcoin’s protocol was to be different because history has shown that getting a majority to vote against their long term self-interest is no difficult task and sadly it may appear that we are witnessing the same in Bitcoin.

If we truly believe a 2 mb block increase is good for Bitcoin then achieving a 95% threshold should not be difficult. It would signal that Bitcoin network is making protocol changes in unison and that no participants are favored over others.   If it cannot be achieved then maybe we should listen to the network.

Erik Voorhees Believes that Bitcoin Core Developers can end Civil War

Erik Voorhees, a Bitcoin Entrepreneur and CEO of Shapeshift.io has a reddit post that calls of Core Developers to end the Civil war by meeting  two demands.

Move 1) Core clearly commits to a hard fork block size increase, by adding it to its formal roadmap. The specific plan should probably be the 2-4-8 plan, as proposed initially by Adam Back, and which achieved widespread consensus after the scaling conferences. The time to add it to the roadmap is now, and the time to execute the HF should then, within reason, be up to Core’s stewardship. This needn’t interfere with, and is certainly not a replacement for, the much beloved SegWit.

Move 2) Core formally, publicly, and clearly denounces the censorship that has plagued community discussion, and should apologize for not having done so earlier. Core is not responsible for the censorship, but stood silently by as it happened, allowing widespread mistrust to grow out of control.

Sadly this post in misguided in several ways;

Adam Back proposed a hard fork to scale Bitcoin over a period of several years, called the 2-4-8.  While there is no doubt that Back’s proposal was sincere, the reality is that any hard fork of Bitcoin as we have argued in the past will ultimately fail, and the results could be catastrophic.  At this stage no credible roadmap  should propose hard forking of Bitcoin short of an emergency flaw with the protocol.  The reason is simple, Bitcoin is practically un-forkable, there is no way at this size of the network to coordinate a full network upgrade across the globe without experiencing serious problems that in the end will undermine the stability of the coin.  Either Bitcoin is a global decentralized consensus-network in which case a hard fork would be contentious and un-workable or Bitcoin is a semi-centralized coin whose entire network can be coordinated by reddit and a few round tables in china.  The reality is that Bitcoin is the former and as such an attempted hard fork will probably result in severe disruptions to the ecosystem.  Finally, any developer who plans on forking Bitcoin would really be a full time politician as almost 99% of their time would be spent convincing the network to fork, as opposed to actual development.

On the 2nd request, asking Core developers to formally denounce something they have no control over can be construed as a backhanded smear tactic. Like asking a man who has never hit his wife, to formally denounce ever beating her.  Greg Maxwell lead developer for Bitcoin Core responded as follows:


On the topic of “denouncement”, I think this note is regrettable: It is both unprofessional and a crass move of disrespect towards fellow human beings.

I called out Theymos on the moderation policy and counciled against it. Yet the poster here claims there was only silence; this is flat out untrue.

At the same time, when moderation was temporarily discontinued before aggressive moderation was first instituted the flooding attacks on the /r/bitcoin were so bad that you could flip three pages before seeing something that wasn’t an (often untrue) advertisement for Bitcoin XT along with a myriad violent insults and conspiracy theories. That same embarrassing non-professionalism and near zero SNR now plague the alternative subforum today.

How loud can I continue to oppose when the “uncensored” alternative is both uselessly bad and, yet, also “censored” itself? I still think the aggressive moderation is a bad move, but would we be better served by turning /r/bitcoin into/r/btc? Absolutely not: And even to someone who believed that the /r/btc way was better: it already exists. Probably the most essential element of free speech online– where the ability to speak at all is nearly a physically inalienable right– is being able to have your own space, where attacks can’t bury your words in tripe. In that sense the constant bragading attacks on /r/bitcoin and against the Bitcoin Core project’s own communication tools are some of the worst kind of censorship possible online.

Against this backdrop; people from the bigger-blocks-at-any-cost community run with smears and insults against myself and the longstanding developers of the Bitcoin software and protocol the network uses today. Though that community mostly acts through pseudonymous throwaway accounts, some of the attacks are by well known names. Does the poster here denounce it? No, not that I’ve observed. Do they denounce the threats against my lives of myself, my family and other Bitcoin developers? Do they denounce the lies being spread to attack my reputation and others who have supported Bitcoin so many years? Do they denounce the flooding of the Bitcoin Core communications channels and github by sock accounts? No, seemingly not.

Of course, there are an effective infinitude of things going on in the world that any reasonable person finds reprehensible. Waging a campaign of disagreement with most of those things has no effect beyond wasting time that could instead be used to inform or make the world a better place. So, I don’t expect the poster to have denounced all the vicious and sometimes unlawful attacks performed in the name of his interests. But I do find it ironic that he criticizes others on the basis of a higher standard than he seems to hold himself to.

Emotionally, the argument that Bitcoin Core has an affirmative responsibility to denounce a social networking forum choosing a foolish moderation policy makes the lack of his own opposition to all the vile attacks against us conspicuous by omission. Was it the intent to suggest a degree of implicit support for the parallel attacks that he hasn’t denounced? I doubt it, but I can’t deny feeling a little bit that way. But if I really expected it done, I would have asked in private; not via an unprofessional public list of demands.

Much of what drives the Bitcoin “civil war” is due to a mis-characterized perception of what Bitcoin is.  Bitcoin is not a standard open source software project,  Bitcoin is a decentralized consensus system, a global political system composed of voluntary participants.  Developers do not manage bitcoin, instead they provide code which the network is free to adopt or not.

This “civil war” is really an attempt for some to try and wrest back control of a system that has evolved past any group of developers, communities, or companies.  It is interesting to note that today Bitcoin trading occurs all over the globe in every language, yet the epicenter of discussion is two message boards which at any time have a combined 500-800 active users.  This shows how out of touch most in the Bitcoin ecosystem are.


*edit* Corrected Mr. Voorhees name.

Why a Hard Fork should be fought, and It’s Not Evil To Discuss.


I choose the one less traveled.

A Hard fork, really is a misleading name. It connotes the idea of a train traveling on the tracks and the conductor makes a decision to change the rail switch, and choose a another track to go down. While the trains directions changes, the passengers cargo and train remains the same. Everyone enjoying a happy trip, maybe the destination changes, but nothing else happened.  You can imagine who today we think is the conductors of Bitcoin, and who tomorrow some hope will be the new conductors.

But in reality Bitcoin is supposed to be a decentralized system, and in those systems,  its not a train, but a group of participants with guns drawn at each other.  More on that later.

In the world of protocols, which Bitcoin is supposed to be, a Hard Fork, is really what a hardware engineer would colloquially call a Rip and Replace, the minute you change one rule that requires a complete network upgrade, you have in fact a new network.   Now while the hardware is not changed, the players are the same, the rules of the game have changed and every participant is in effect starting from scratch in a new field.

While we have a distinction between Hard and Soft Forks, and Peter Todd does a great job explaining, the difference.  I will discuss, why hard forking, which some celebrate as the epitome of  bitcoin resilience is pernicious and dangerous in a decentralized network, particularly if the minority simply accepts it.  Hard Forks should be  a last resort and should be something self-evident to the network.  If they are not it is incumbent on the minority to threaten to break the network if needed.

But before we even state why a minority should fight, consider the following:


In fact Hard Forks, should be practically impossible in Bitcoin, if it is truly a decentralized network.  Consider that in a truly decentralized trust-less network , there is no central authority and the participants do not know each other. How can you signal to an entire network it must replace its protocol at a specific date and time?   Who would make this signal?

Take the debate of encryption on the internet as example. Encryption is many different protocols, which some governments now want backdoor access to.  Except there is no possible way they can have access to all systems because encryption technology is decentralized and evolving, there is no way to signal to all participants to accept a specific standard. There is no way to even “hard fork” to one standard encryption protocol even if all the governments of the world somehow wanted to. Doesn’t mean they won’t try, but this is the nature of a truly decentralized system.   Hard Forks in decentralized systems cannot be imposed they must emerge.

Probability of any Hard Fork Occurring and Succeeding is inverse to the level of decentralization of network
Probability of any Imposed Hard Fork Succeeding is inverse to the level of decentralization of network.

Recall the Y2K bug, for those who weren’t around, it was a potential bug embedded in what was an emergent standard (not dicated or set) of how data was stored in computer systems. Computer systems once deployed operate and exist in decentralized global system. In this case there was  was a common practice, of using truncated 2 digit years to save space. So that, a document with the date of  October 26, 1985, would be stored as 102685. This worked great for about forty years, particularly in the days when space was measured in bytes and kilobytes. Then around 1995, despite it being a known issue in some circles for years earlier, technology professionals began realizing that in the year 2000, some computers would mistakenly read the date of 01-01-00 as January 1st, 1900.   On the face of it not the end of the world, but then people began realizing how date systems were  anchors  to all kinds of functions within programs and computers, and it became apparent it could be catastrophic. There were concerns people could not get paid, social security checks would not be sent, medical benefits revoked, flight control systems in airlines disabled, traffic signaling systems, banking,  on and on.   Well once again the governments of the world could not really mandate this change although they attempted via laws and committees. Overall because it was in everyone’s self-interest to avoid a computer failure on January 1st 2000, an emergent hard fork occurred, where pretty much every computer system was either updated or replaced, and still many were not. This is an acceptable hard fork, while the Y2K bug in the end was overblown, it was apparent from game theory that it was not an attempt by one party to gain, but all  parties where affected equally and possibly fatally. It was truly  a once in a life-time, possible do or die, situation that necessitated a hard fork.   This should be the standards for Hard Forks, it should be an unknown event because in a decentralized network where all parties are equal it takes an external event or threat of that no one has control over to signal to all parties equally to change.  If not one must conclude the network is not decentralized.


Nobody Move

Taratino Standoff
Taratino Standoff


Above I stated that if a hard fork attempt is made on the network without self evident consensus then in fact the minority needs to view this as an attack of the network and now has a choice to make.

Consider a simple consensus network of 3 parties. All Parties are in equal position of relative power as they perceive it. The parties are not identical however their benefit received from the network is.

Party A participates for perceived reward Ar
Party B participates for perceived reward Br
Party C participates for perceived reward Cr

The total value of the network reward expressed as Ar+Br+Cr

Party B now determines that if they can change one rule in the system they can receive Reward Br+1, thereby improving their results and those of C, even though they believe it may not benefit party A.

Party A view the change as Ar-1, thereby a loss to them.

Party C views the change as Cr+1, indicating that they will work with B to override A.

The resulting value of the network reward being (Ar-1) +( Br+1) + (Cr+1)

Clearly B and C were correct to engage, even at the expense of A, they benefit, and the network may benefit, assuming their calculations are correct.

Party A has the choice to accept the change, or exit the network. Party A’s only ability to stop the attack is to either affect the value of B and C’s Reward to where one of the attacking party perceives it will be a net loss if it continues.  Additionally consider that parties B and C will signal that no matter what A does they expect to be victorious. Although no party in fact knows how one will act and what the result will be until after the process is complete.

A now signals, that in fact it maybe willing to even further impair its own reward if the possibility exists of any way impairing  one of the participants own rewards, and the overall network reward. So that for example it becomes (Ar-2) + (Br+1)+ (Cr ), where now even C’s reward expectations can be impacted thereby affecting his expected reward.  A has now effectively created the possible scenario that in fact the overall network will lose rewards.  Notice that B may still move ahead, because it is still a positive for itself at the expense of the network, but now C sees no gain, and in fact sees possible future impact to the network.  (This is common defense for the coin limit where removing the cap in theory would not be possible because A the non-miners would signal that they will suffer greatly  thereby impairing the network, by dropping the price of bitcoin and abandoning their investment)

The reason this is legitimate is because all three parties entered the system to play by the same rules, by B and C changing the rules, a new system emerges, A must now choose to stay, exit or signal to B and C that they are wrong and A must show B and C how their assumptions are incorrect.

If Bitcoin permits a Hard Fork of the network, and if a majority can hard fork the network against the wishes of the minority then what is happening is that Majority has effectively discovered a loop hole in the consensus rules and is engaging in a network attack to reward itself from the benefits of the attack.  Regardless of how altruistic B claims their intent is, regardless of whether B believes that their solution will bring peace on earth, and caviar dreams and limousines to all, one has to assume in a decentralized system that all participants act out of self interest first, and if one party sees no reason for a consensus rule change and the other party does then more than likely the majority party is looking to increase its benefit at the expense of the minority.

Any result where the minority cedes to the attackers concludes the network is centralized because either A concedes and remains in the network thereby signaling that in fact B and C own the network and will manage future changes to their benefits, or A exits the network which has the same result in centralizing the network to B and C.  Only by A successfully signaling that the attack will result in a loss for all can the network be restored to a decentralized state.

Shoot the Hostage

Pop Quiz Hot Shot!

In the 1990 cult classic  movie Speed with Keanu Reeves and Sandra Bullock, the movie deals with a villain, played by the late Dennis Hopper, who masterminds No-Win scenarios, in a game of wits against Keanu’s character a Swat Officer called Jack.  Jack must figure out how to catch the villain while escaping his traps,  disarming his bombs and not killing civilians in the process.  In the famous scene above, Jack in order to stop the villain from taking his partner hostage  uses the unconventional tactic of shooting the hostage (his partner) in the knee.

In a foreshadowing to the above event the following exchange takes place between Jack and his partner

      Partner:     All right. Pop quiz.

              The airport. Gunman with one hostage.

              He's using her for cover. He's almost to a plane.

              You're  100   feet away.


 Jack:   Shoot the hostage.


Take her out of the equation.

Go for the good wound. He can't get to the plane with her             

Clear shot.

              You're deeply nuts. You know that?

              "Shoot the hostage."

As Hollywood as the scenario is, it is a legitimate game theory option. This is asymmetric warfare, where the opposing force’s only chance of success is to communicate to the larger force that it will pursue unconventional tactics, that were likely not part of the large forces calculations. This can then bring into question if the successful attack of the larger force will provide the results it seeks.

Similarly those who oppose the hard fork maybe forced to signal to the attacking party that they may attempt different techniques which could undermine the overall results, the hostage in this case Bitcoin.

Some would be horrified at this discussion and indeed it is being discussed on reddit.  But the reality is in a decentralized network, all participants are free to play by any rules within the consensus, and if they can change it to their benefit than the consensus rules were not properly balanced or decentralization never existed.

One scenario discussed in reddit, is forking to an alternate PoW with all the pending hard fork changes proposed by Core, thereby giving the market 2 clear choices, a 2mb increase via contentious fork, versus a coin that has serious improvements on the bitcoin protocol with a PoW that locks out all existing hardware, while this would lock out hundreds of millions in hashing investment, it opens the possibility of capturing wasted hashing locked away in worth-less altcoins and because it is forking as a last resort, a nuclear option, the only reason a hard fork should ever be attempted, it may signal to the overall market that this new coin is the more decentralized alternative.

The fact is,  that the market has incorrectly assumed that core development is a centralizing force for not implementing a hard fork, and in fact it is not. Core Development correctly concluded that Hard Forking a protocol, without the hard fork being emergent and self evident, would be an act of centralization with the potential to break bitcoin, so they did not do it.  Additionally, others have mistakenly perceived  Core’s inaction as centralization, and are now themselves acting in manner to centralize the network by imposing a consensus change to the network without actual consensus.

Again, unless a self-evident, consensus emerges, the “Oh my god a Giant Metor is Coming”, there is no reason to hard fork an operational consensus protocol.   And as such the minority power has every right to pursue all options as much as the majority power.

Now I am not advocating deliberate sabotage, or anything illegal, nor am I spitting sour grapes.  But I do believe that in a decentralized system like Bitcoin that decentralization must be maintained at all costs and it is up to each participant to defend that, any party which is  acting to exert influence on the others outside of the consensus rules is in fact attacking the network regardless of hashing power.  To the extent that people view core development as a centralizing force they have every right to decentralize from them, notice however that core never imposed anything on the network it merely played by the already existing consensus rules.

With each successful hard fork of the network, one has to assume that either independent miners or full nodes have been lost, or combination of both or the network is centralizing on some sort of signaling.  Typically the signal being that with each successful contentious fork the winning hashing power will be emboldened to continue attacking the network in successive self-reinforcing victories.

Hard Forks, in effect break the rules of the protocol, it invalidates all previous game decisions made by participants, and in effect creates a new network, with the reality that it is just a matter of time before the rules are invalidated again.  Now someone would call this anti-fragile but this is wrong this is run away centralization, and in fact will lead to an inevitable  black swan event. Because, the resiliency of the network the counter balance is being attacked and chipped away to accrue benefits to majority, while they are blind to the ever increasing danger of centralization.

This does not even take into account the negative signals to outside forces of seeing what is supposed to be a decentralized censorship-resistant protocol in fact centralizing and ejecting elements out of the system in pursuit of non-participant actors. One of the biggest sponsors of a contentious hard fork is in fact an entity that shouldn’t even exist in a Bitcoin, Coinbase. The fact is if that if the majority of keys where held by independent parties with at least some running full nodes, and bitcoin mining was not 10 guys in a room, contentious hard forks would be impossible to coordinate.

Now Hard Forks would clearly have less risk again, if they did not have a centralizing effect, or they where a net neutral, i.e.  to address a catastrophic bug, a protocol flaw. However those would still come with potential new changes and unintended consequences, but they are pursued when the alternative is typically fatal to the network.

The 1mB limit as stupid and arbitrary as it may be is not a flaw, it does not break bitcoin, and in fact blocksize is inherent to bitcoin, since it was imposed by Satoshi on the network, so one cannot say that a catastrophe has been avoided by doubling a number.

As we previously discussed in a Dangerous Path Ahead, nothing good will come from this contentious hard fork of Bitcoin, and the laughable 2mb increase may come at irreparable harm to bitcoin and its claims to be a decentralized censorship-resistant currency.







On Mike Hearn, Block Size, and Bitcoin’s Future

Regardless what you think of block size debate. Mike Hearn and his tactics have done nothing but pollute the well. He has been intransigent in development, his proposals were routinely shut down because they were horrible on a technical level, he had many dangerous ideas which undermined the very concept of Bitcoin. When he made no traction with his idea, he created his own Bitcoin client.

Because that wasn’t enough he began politicking users to switch to his client. When users found no technical benefit or improvement over his client and failed to adopt it, that wasn’t enough. He then found a tool which he could use to drive a wedge into the community, and drive adoption to his client or so he thought, the block size. Rather than offer constructive support to this issue, he recruited Gavin and others to create this imaginary war that did not exist, of a Bitcoin mafia vs the people. Coincidentally, it was during this time that he became concerned with the block size, that the spam attacks on the network began happening. Heckuva coincidence.

Mike in his dramatic style made the proclamation that bitcoin is forking. He completely introduced a new level of politics to Bitcoin beyond what it had ever experienced. In addition, Mike has managed to make the scaling issue, a complex technical issue, into something that is a political litmus test, like abortion, or gun control, something that was sorely missing in a technical community.

As if merely raising the block limit would fix Bitcoin’s problem in his eyes. Mike is smart enough to know that wasn’t the case, but it didn’t matter because by turning something complex into something simple, he was able to sell the story, to people who weren’t interested in the technical nuances, but wanted something to hang their beliefs on. His ideas were perfect fodder to those adopters who were suffering in Bitcoin’s long bear market. Mike had the answer, bitcoin is suffering because the devs refuse to scale it. Mike Hearn had a simple solution, just change a number, its so easy, any lay person can see that. Clearly if you opposed such a simple change you had ulterior motives, the people in opposition where trying to steal bitcoin.

Mike worked in front and behind the scenes like a dogged politician to create this imaginary timetable that bitcoin was about to explode and collapse, watch the price he said. Creating sensationalist media posts that were technically flawed, and painted bookworm engineers, who have done nothing but work in the best interest of Bitcoin, as scheming backroom politicians who were co-opting bitcoin for their meglo-maniacal ambitions (project much Mike?) When the time table for Bitcoin’s, life or death decision came and went, and bitcoin did not collapse, and no one adopted his client, he cried foul. Ironically, Mike laments that Bitcoin is the hands of 10 developers (not true) yet he had appointed himself the benevolent dictator of his coin Bitcoin-XT.

Why was the Bitcoin community not falling on its sword and adopting his plans? It’s probably because again, the secret cabal was conspiring to suppress his ideas. His ideas which were spammed over social media, which got thousands of page views, which generated hundreds if not thousands of hours of discussion. Despite all this, no-one knew that Mike had this beautiful solution to rescue bitcoin, all because this evil mafia conspired to deny freedom to Bitcoiners around the world and keep his ideas a secret.

Meanwhile actual developers are moving forward with proposals that will scale bitcoin but Mike says that isn’t enough. Despite his incessant nagging, driving XTers to brigade every bitcoin discussion, ruining technical discussions in the development mailing list. That still wasn’t enough. Nope, unless Mike Hearn got his way, Bitcoin is a failed experiment. Mike Hearn’s goal was never about Bitcoin, it was about wrecking Bitcoin. There is no way you can reconcile his tactics with someone who put Bitcoin first.

No one had previously proposed forking Bitcoin to their own client, without calling it an altcoin or alternate implementation. Even Garzik was clear about in discussion with Satoshi himself. Mike was the first to introduce the idea that creating your own implementation of Bitcoin, which is not compatible with other implementations, and changes a core function of bitcoin with something as low as 75% approval, was not an alt version of bitcoin but was still Bitcoin. Amazing,  He has attempted to change what was an accepted and understand aspect of Bitcoin.

Now forking Bitcoin is a grand idea, Bitcoin forks for everyone.   Forking Bitcoin is not something new, it has been around since day one, and the community had agreed that a fork of Bitcoin, without unanimous consensus, was  an Altcoin.

People who care about bitcoin do not promote Altcoins because it’s clear this would fracture Bitcoin and undermine the very method in which bitcoin secures itself.  But in Mike’s world people should undermine their investment in order to get a better investment.

Bitcoin has shown that the economic consensus mechanism works, that the consensus will respect the protocol. That if the time to change the protocol comes, it will be a change that is readily apparent, and will be adopted unanimously (Mike, that means without opposition.) Because from an economic interest it makes no sense to undermine bitcoin by fracturing it. And so surprise, suprise, bitcoin participants are making rational economic decisions. Bitcoin is not a democracy where 51% rules. In fact that is Bitcoin in a state of attack.

Still the very fact that Bitcoin has continued to function, and even begun to rise again precisely when it was supposed to be collapsing, was a slap in the face to Mike Hearn. So the final stroke a front page NYT , “you can’t fire me I quit ” announcement with a dramatic companion post all over social media, as If Bitcoin has lost some key intellectual power.

Sorry Mike, but Bitcoin is not yours to fail .

The best thing that could happen to Bitcoin and Mike Hearn is a final divorce, though messy it has been. But has Mike really left us? Something tells me he hasn’t. Instead Mike’s new job will be to further the new meme that Bitcoin is a failed experiment and he should know because he was a “lead” developer who worked directly with Satoshi.

And for proof, this morning I watched the Brookings Institute Webstream of their conference Beyond the Blockchain,. The very first thing thing Charley Cooper of R3 CEV (Mike’s new employer) brought up was how Bitcoin was failed according to Mike Hearn, how Bitcoin was not going anywhere and that the future was private block chains.

So let’s congratulate Mike on his new role, where he will work to undermine bitcoin at every turn in front of regulators, banks, VCs and the public. At least now Mike can stop pretending what his real goal has been all along.

Because this has never been about raising the block limit or about or about a technical issue. This has been about co-opting Bitcoin into either Mike Hearn’s coin, or something more nefarious, on behalf of greater powers.

Mike, Good Luck, Stay Strong; I wish you the best.

Bitpay working with Chainalysis, Is Bitcoin Fungibility at Risk?

A post on reddit’s /r/bitcoin brings up concerns that Bitpay maybe  working with the company Chainalysis.

user /u/dnale0r posted:

I just asked Marcel Roelants, general manager of BitPay at the bitcoin meetup in Amsterdam if they actively cooperate with a company like chainalysis. It turns out they do.

They check incoming payments for suspicious transactions. They also collect consumer data, certainly for some kind of transactions like buying / selling gold and actually are in favour of putting identity in a bitcoin wallet.

I hope the video will be released soon so we can share this on r/Bitcoin

Chainalysis was one of the first companies created to specifically data-mine the bitcoin ledger. Wherein different analytical tools are used to compile a possible history of the inputs and outputs that comprise  a bitcoin account. This analysis can be used to construct a picture of where bitcoin transactions may have originated prior to being spent at a bitpay merchant.  In effect, creating a blacklist/redlist system where bitpay may reject certain transactions.

The rise of companies like Chainalysis has been an extremely controversial development.  One which has been warned about in the past by people like Adam Back the father of Hash Cash and a Bitcoin Developer.  Back has been very outspoken about the risks, that these tools could be used to attack the  fungibility of bitcoin. As far back as November 2013 Back posted on bitcointalk.org  his concerns with redlist/blacklist services:

Its based on significant misunderstanding about bitcoins value proposition – destroy its fungibility and the costs float up to meet credit cards and paypal..

Fungibility has long been considered a key characteristic of money, the concept that one dollar or bitcoin is the same as any other.   In order to protect Bitcoin’s fungibility Back has expressed the need for stronger privacy tools in bitcoin, to make it harder or impossible to conduct these types of data mining.

Here is a talk Adam Back gave in February of 2014 regarding, Fungibility, Privacy and Indentity in Bitcoin.


Clearly if it turns out that Bitpay, the larget Bitcoin payment processer, is working with Chainalysis it would bring into question bitcoins fungibilty in consumer transactions.

However one interesting development is that Segrated Witness which is a proposal to scale bitcoin, may also enable new privacy measures in bitcoin, diminishing or negating Chainlsysis business model.

A recent proposal appeared on the Bitcoin Development List piggyback on Segragated Witness to enable confidential transactions.


The segregated witness[2] proposal by Pieter Wuille allows to reduce the
blockchain to a mere utxo changeset while putting all cryptographic proofs
(redeemscript/pubkeys/signatures) for the inputs into a witness part.
Segwit also allows upgradable scripting language. All can be done with a
soft fork.

We propose an upgrade to segwit to allow transactions to have both
witnessIns and witnessOuts.

We also propose 3 new transactions types: blinding, unblinding and
confidential. Valid blocks containing any of these new transactions MUST
also include a mandatory special output in their coinbase transaction and a
new special confidential base transaction.

Hopefully these new developments will bring about stronger privacy and anonymity in Bitcoin and insure its future fungibility remains intact.

Bitcoin Software Introduced 7 Years ago today.

While the Bitcoin Genesis Block was created on January 3, 2009, you could say there was no network until you had other participants.

And so it was 7 year ago today on January 8th 2009, that Satoshi Nakamoto announced the release of Bitcoin v0.1 to the cryptographic mailing list launching Bitcoin to the world.  The entry is reposted below in its entirety.

Announcing the first release of Bitcoin, a new electronic cash
system that uses a peer-to-peer network to prevent double-spending.
It's completely decentralized with no server or central authority.

See bitcoin.org for screenshots.

Download link:

Windows only for now.  Open source C++ code is included.

- Unpack the files into a directory
- It automatically connects to other nodes

If you can keep a node running that accepts incoming connections,
you'll really be helping the network a lot.  Port 8333 on your
firewall needs to be open to receive incoming connections.

The software is still alpha and experimental.  There's no guarantee
the system's state won't have to be restarted at some point if it
becomes necessary, although I've done everything I can to build in
extensibility and versioning.

You can get coins by getting someone to send you some, or turn on
Options->Generate Coins to run a node and generate blocks.  I made
the proof-of-work difficulty ridiculously easy to start with, so
for a little while in the beginning a typical PC will be able to
generate coins in just a few hours.  It'll get a lot harder when
competition makes the automatic adjustment drive up the difficulty.
Generated coins must wait 120 blocks to mature before they can be

There are two ways to send money.  If the recipient is online, you
can enter their IP address and it will connect, get a new public
key and send the transaction with comments.  If the recipient is
not online, it is possible to send to their Bitcoin address, which
is a hash of their public key that they give you.  They'll receive
the transaction the next time they connect and get the block it's
in.  This method has the disadvantage that no comment information
is sent, and a bit of privacy may be lost if the address is used
multiple times, but it is a useful alternative if both users can't
be online at the same time or the recipient can't receive incoming

Total circulation will be 21,000,000 coins.  It'll be distributed
to network nodes when they make blocks, with the amount cut in half
every 4 years.

first 4 years: 10,500,000 coins
next 4 years: 5,250,000 coins
next 4 years: 2,625,000 coins
next 4 years: 1,312,500 coins

When that runs out, the system can support transaction fees if
needed.  It's based on open market competition, and there will
probably always be nodes willing to process transactions for free.

Satoshi Nakamoto

link to original post

Bitcoin Foundation Where did All the Money Go?


Bruce Fenton of the Bitcoin Foundation published on the reddit bitcoin sub an open letter detailing the much maligned Bitcoin’s foundation expenses.  Sadly an organization that was created to help promote and sustain bitcoin instead stands as another black mark on the bitcoin PR list.

His reasons for the current financial collapse of the foundation:

1) a large drop in Bitcoin value costing millions of dollars – the peak foundation assets were calculated based on a Bitcoin price in the $800 range — so, had they simply held those coins it would have seen the $6-7 million fall to $2 million or so

2) ridiculously wasteful and reckless spending

3) reasonable and legitimate expenses such as Gavin and dev salaries


Lets be real, the reason the foundation is in the position it is in, is #2

When you look at the Salaries being paid out in 2014, during the start of Bitcoin bear market.


Gavin Andresen: $147k. Chief Scientist. Salary down from $209k (salary was higher in 2013 as it was pegged to BTCUSD)

Jodie Brady: $141k. COO of the Foundation, who also served as CFO at CoinLab (Peter Vessenes’ affiliate company).

Jon Matonis: $137.5k through “THE HOLE OF ROY LLC”. Salary up from $31k. Jon Matonis acted as Executive Director up to October 2014.

Patrick Murck: $115k. Executive Director of the Foundation (as of November 2014). Salary up from $57k.

I’ve seen less executives at an all hands meeting in a Fortune 500.  The fact is the foundation with a 7 million trust during Bitcoin’s all time high was a tiny organization, smaller than your local dry cleaner chain. Yet everyone had six figure salaries.

Then wasteful spending on conferences and PR, which at a minimum should actually be opportunities to fund raise.

“LOCAL PRODUCER” was paid $790k to host Bitcoin 2014 in Amsterdam.

Apple Fundraising Consultants were also paid $123k for activities related to the aforementioned conference.

THEPOLICYCOUNCILCOM INC as the Foundation’s ‘Global Policy Counsel’, paid $114k for about 9 months of work in 2014.

And the breakdown of the functional expenses, oh, so many expenses: Office Expenses: $39k up from $8k in 2013.

Information Technology: $158k up from $67k

Travel: $159k up from $69k

Occupancy: $18k up from $7k.

Accounting: $50.5k up from $9.1k.

Legal fees: $220k up from $161k.

Other: $653k, consisting of:

Professional services: $307k

Public relations: $93k

Executive Directory Compensation: $137.5k

Professional event expenses: $115k

Other salaries and wages: $471k up from $72k

Sure hindsight is 20/20 but there were plenty of voices calling for audits, and tighter control of bitcoin foundation spending for several years. It’s also clear that those placed in charge of the foundation had no experience in managing a charitable organization who needs to rely on its donors. Rather than build trust with the community bridges where burned at every opportunity.

The foundation took in revenue of less than a $1 million dollars.

Revenues : Membership dues: $335k down from $358k Conference revenue: $584k up from $337k At the end of 2014 not much was left: $366k.

It spent over 50% of its revenue on the salaries of 4 people?  Is that even in compliance with 501c3? One of the criteria the IRS uses is to outline compensation for executives is the Budget of the charity 

Sorry but I can’t imagine that consuming that much on Executive Compensation is justified.

The Bitcoin Foundation was a giant pass through to a select group of people



Bitcoins’ Civil War Heats Up

The continued conflict between those who demand an quick increase in blocksize and support BitcoinXT or BIP 101 proposals heated up over the weekend when Coinbase CEO, Brian Armstrong announced over twitter that they are experimenting with BitcoinXT Nodes.

In response a user on reddit and github Cobra-Bitcoin, linked to their pull request to remove Coinbase from the chose your Wallet page on Bitcoin.org

Coinbase is now running Bitcoin XT in their production servers. XT is an contentious hard fork attempt that will create a new altcoin and split the community and blockchain should it ever go into effect. If this ever happens, Coinbase’s customers may find that they no longer own any actual Bitcoin.

This pull request removes Coinbase from the “Choose your Wallet” page to protect new users from being on the wrong end of a blockchain fork. Bitcoin.org should only promote Bitcoin services. Companies that use XT don’t meet this criteria because they support forking off the blockchain and switching to a new incompatible currency without broad consensus.

Bitcoin Core has already announced a road map to address scalability concerns. I don’t see why@barmstrong feels the need to try to promote XT in this way. Almost all of the Bitcoin technical community supports the announced road map. It’s not like things aren’t moving forward.

I’ll merge this soon. Feedback is always appreciated though.

The pull request was approved and merged around 10 AM EST on Dec 27th.  As a result Coinbase has been removed from the bitcoin.org website as recommend bitcoin wallet and service.

Another pull request has been submitted to rever this change and restore Coinbase as a recommended wallet.

Meanwhile r/bitcoin and twitter are hot with arguments for and against the ostracization of coinbase.

below are some excerpts.


My thoughts; these sideshow dramas will fall away once actual code is committed to bitcoin showing some scaling.  Looking through the Bitcoin-Dev mail list you can see concrete discussions and work being done.  In the meantime lots of popcorn will be consumed.

More comments can be viewed on reddit.com/r/bitcoin.


*updated 12/28/2015@12:00 EST – Screenshot of the new Choose your Wallet page on Bitcoin.org

Bitcoin.org Choose your Wallet Page without Coinbase.
Bitcoin.org Choose your Wallet Page without Coinbase.

with screen from bitcoin.org*