This March proved exuberant of drama for the entire cryptocurrency community. First, the Winklevoss failed to obtain SEC approval for their ETF, then some altcoins rushed upwards, and all that against the background of fierce discussions concerning well-planned media attacks by both sides of the Unlimited/Core conflict. This feature discusses some important issues of the situation and possible scenarios of further development of affairs so that we could understand who profits from destabilizing the market.
Antpool’s switch to Bitcoin Unilimited was a key trigger for the entire community’s involvement in the drama. Not just regular cryptocurrency users, but even an entire internet ombudsman of Russia had something to say, which might resemble an international conflict. ??Tis but a joke, but there’s only a grain of joke in every joke.
Here’s the list of pools that supported Bitcoin Unlimited:
Quite remarkably, Anpool is directly related to Bitmain, one of the biggest mining equipment manufacturers whose profits essentially depends on the demand for bitcoin mining machinery. Even considering the most bloodthirsty turn of events when Bitcoin splits into two chains, Bitmain would have sold twice as much their equipment.
It’s also quite possible that Bitmain will soon release an ASIC miner for X11 algorithm used by Dash. Dash price increase is a great reason to boost their sales.
Let’s also consider the problem quoted by the Unlimited-supporting pools. They believe blocksize has to be increased so that the network throughput would become higher. The table below shows some stats for blocks mined by some pools, with BU-supporting marked with a yellow dot.
according to btc.com
The table shows that Antpool is amongst the leaders when it comes to empty blocks. However, other pools that have not claimed their support for Core or Unlimited protocols yet, keep apace with it. Average filling rate of AntPool’s blocks also leaves much to be desired compared to F2Pool or BitFury, even though the pool is somewhat a Bitcoin Unlimited stronghold. This brings up the question of whether the BU-supporting pools really lack free block space, or this megalomania has some other reasons behind it.
Notably, in the current situation when user load on bitcoin steadily grows and issues with full transaction pools is not that uncommon, mining empty blocks is a game against the entire ecosystem and the very pool in question as it means losing additional profits from transaction fees.
In this situation, Bitcoin Core certainly pursues its own interest that currently focuses on defense. For the part of the community that supports Bitcoin Core, it’s strategically important to maintain the ecosystem as a whole, and give it an impetus for further growth. It’s quite possible that some sort of a purely technological conflict underlies the entire drama as there are two most prominent figures fighting in the public media space: BitFury, who support Core and SegWit, and Roger Ver who leads the Unlimited armies.
At the time of writing, the latest thousand blocks look as follows:
The entire situation resembles an ancient Chinese game of Go. Nehemia Kramer was the first to point out that fact to me, which I’m quite thankful for, so I’ll be pleased to use Go as a great metaphor. In brief, the game is about moving black and white stones on a board in order to occupy as much space as possible by surrounding the opponent’s stones.
There’s a great analogy in the world of cryptography known as the Sybil attack. The attacker deploys controlled nodes in the network to influence some processes or effectively analyze the traffic. In bitcoin, a successful Sybil attack would allow the attacker to do the following:
1) double spend attack
2) effectively analyze and trace third parties’ transactions
3) block transactions to isolate the foe from the rest of the network.
For that reason, the game of Go is a perfect description of the processes being underway in the industry.
Still, the most interesting things usually occur in media silence, not because journalists or community drivers have something to conceal but because the focus of attention is shifted to the most color-intensive picture. It’s a well-known method of manipulating social consciousness actively employed by modern-day politicians, and it’s not that easy to identify it. For instance, if one has to have a very unpleasant law passed in a parliament, some high-profile accidents or political scandals suddenly unfold to be discussed for months to come. I believe particular examples of this technique are well-known to many ForkLog readers.
When it comes to bitcoin, the drama’s active phase coincided with increase in price of some altcoins, which might seem quite a normal thing: investors have their profits, traders get new opportunities, and the entire market grows.
In this case, however, only one altcoin should draw our attention. I’ve mentioned it above: it is Dash aka ex-Darkcoin aka ex-Xcoin. Developers of this cryptocurrency abandoned cryptoanarchist principles of naming and switched to mass audience. After the rebranding, the Dash team did its best to distance itself from the project’s dark side and attempted to institutionalize it by actively changing ??dark’ for ??private’ in the tools developed earlier.
Notably, Dash’s anonymizing has no fundamental differences from that offered by nearly every bitcoin mixer. If you’re about to have a go at Pablo Escobar’s financial success, Dash is hardly the cover-your-tracks tool of your choice. If you really need to use anonymous cryptocurrencies for private purposes, your best choice would be Monero as the wonderful attempt to implement Zcash resulted in creating quite an overestimated Frankenstein’s monster.
Now, let’s recall some Dash news for the last 6 months: Dash is supported by 36 PoS terminals around the world; Dash adds support for KYC and AML compliance; and don’t you forget about lots of integrations in hardware and mobile wallets. It all means that the project is actively promoting itself.
Evan Duffield and some other Dash developers perfectly understand the threat of Lightning Network’s integration in Bitcoin to their project. Dash founder spoke on numerous occasions that his project doesn’t face Bitcoin problems of centralization risks or scalability issues. However, as we all know, Dash doesn’t have as much user load as Bitcoin.
And the main piece of the puzzle is the release of Dash Evolution scheduled for late 2017. The drama around further development of bitcoin is quite likely to continue after the May meeting of the market’s key players, as well as this fall, on the precipice of Evolution release.
This struggle for user base isn’t about possible hard fork or choosing the best protocol, but about long-term destabilization of bitcoin economy that would drive users to altcoins or at least cause them to hedge their risks by seeking some new options.
Furthermore, a hard fork or other unpleasant consequences of the building crisis aren’t profitable for any of the adversaries. However, the game still may go too far and once they may lose control over market manipulations.
Ethereum seems a promising investment facility, even though it’s primarily a platform, not a value transfer tool. Ethereum’s reputation problems are still there in the memory of users. Ethereum Classic, which had retained the original blockchain, will have additional chances for success in this regard.
It’s quite possible that Dash would be the first choice for those willing to save their assets in case of Bitcoin hard fork. Marketing experts have done their job well for the project, and investors have pumped its liquidity.
This explains the role of Roger Ver as a major investor in the project. Activation of SegWite and Lightning Network as well as implementation of platform options and settling the scalability issue would take away Dash’s advantages and turn it into yet another altcoin with a limited user base. This isn’t about attempting to disclose a cunning conspiracy by Dash investors, it’s but a possible scenarios using open data.
The Dash team, as we’ve seen, does its best to drive the project towards the maximum acceptance of the project in the community, and to expand its user base. However, experience has proven that the project isn’t of much need. The key characteristic of mass acceptance and user base expansion is the growth of transactions number. The more users, the higher transaction activity. So, let’s compare two symptomatic charts.
According to bitinfocharts.com
This is transaction activity in Dash since the days of its conception. As you can see, the transaction activity peaks in February and March of 2017, which possibly explains price increase that caused longholders to move their coins to exchanges. Average transaction load fluctuates around 1,000 to 1,500 transactions a day. So, how big has an economy to be if its needs are satisfied with fifteen hundred transactions a day? I may even suggest that your local grocery store has more transactions effected over 24 hours.
According to bitinfocharts.com
This is the same chart for Bitcoin. For comparison, let’s consider the period when its price increased to $100 (that’s the same benchmark recently taken by Dash). April 2nd, 2013, bitcoin price was slightly above $100 and moved upwards. Daily number of transactions that day exceeded 60,000. Earlier, May 22, 2011, when bitcoin was worth around $5, its transaction activity comprised around 5,000 transactions a day. However, the chart shows dynamics that grow in the wake of bitcoin’s infrastructural development.
Even Litecoin’s transaction activity is higher than in Dash, which is especially remarkable considering the Litecoin community does not attempt to expand its user base or have mass acceptance.
According to bitinfocharts.com
If we look at Ethereum’s transaction activity, we see intense growth, yet it’s not quite fair to use it as an example here. Anyway, this is a key factor indicating that Dash is a speculative project now.
The role of exchanges at this feast in the time of plague is quite obvious. By their actions that influenced the market, the exchanges reinforced their financial situation and demonstrated their priorities to everyone. It’s important to realize that their seemingly harmless statement that had to calm down the community in fact caused even greater panic.
Now, coming back to the game of Go and the Sybil attack. In this case, some bitcoin holder, an investor, is being under attack. The attack generally takes a series of steps.
The investor gets the first signals suggesting that the industry isn’t that trouble-free. The price, however, actively grows, businesses develop, and many new projects pop up. However, transactions are incredibly slow taking a few days sometimes; the network sustains expensive spam attacks; and a part of the community demands that block size is increased and Bitcoin Unlimited protocol is used asap. However, the exchange rate keeps on growing, and even slow transactions aren’t much of a trouble as Lightning and many new novelties are soon to be deployed to make bitcoin fast and up-to-date.
One of China’s biggest mining pools starts mining Bitcoin Unlimited blocks. The community experiences another strike of unrest. A bit later, the same pools completely switches to BU, and several major miners follow the example.
The Winklevoss’ application for Bitcoin ETF is declined by the SEC. The price goes down, the BU activity goes up.
Cryptocommunity stakeholders start joining the game. Chandler Guo, a well-known miner, expresses his intent to support BU. He had earlier announced an ICO to launch a mining pool to support BU, and then openly supported the protocol. Roger Ver, one of the main BU propagandists, is working on the same position. People even wonder could Barry Silbert of DCG support BU along with the world’s biggest cryptocurrency news outlet, CoinDesk.
In fairness, Roger Ver controls news.bitcoin.com, which is essentially the main BU propaganda outlet. Bitcoin.com has its own pool which, of course, mines BU, and takes up to 2.6 per cent of the entire network. Core evidently lost the first battles of the media war, and could recoups itself only after the attack on BU nodes.
Uncertainty fills the air when several exchanges issue a joint plan of actions in case of bitcoin hard fork. A few steps back, the attacked bitcoin investor considered the entire situation as a tech-geek argument on something unclear yet important, and now the scary word of hard fork is heard from everywhere. The terror of The DAO and Ethereum’s splitting into Classic and Enterprise come to mind in the blink of an eye. A few days prior to the collective statement from the exchanges, Bitfinex added Dash along with margin trades for the same Dash and a few other altcoins.
BitFinex adds the option of trading BCU and BCC, i.e. playing on the hard fork expectations. On this background, Dash renews its maximums every single day.
Over the course of the game, the Unlimited infrastructure faces several well-planned attacks, so the opposition is gradually becoming a war. However, the adversaries make a pause and agree they hold negotiations this May. Uncertainty.
Those steps could be way more detailed, yet basic understanding of the situation may use the abridged version. Eventually, the bitcoin investor is successfully attacked and might have bought Dash for $100, which had been amongst the attack’s primary goals in the first place. The only thing the attacked investor is left to do is to hedge with forks and wait for the sharks to strike an agreement.
Even though the connection to Dash’s development might be a bit far-fetched, the true goals of the blocksize game could become a bit clearer. It’s not about actual opposition of approaches towards bitcoin’s further development, but about a game for going short and luring users to controlled safe harbors.
by Toly Kaplan