This week we provide an in-depth analysis and explanation of the upcoming bitcoin soft fork. We analyze the likelihood of a subsequent hard fork and examine the case study of Ethereum, which was successfully hard forked not long after launch. We also follow up with our coverage of the AlphaBay shutdown and talk about novel ways which developers continue to employ blockchain technology.

BIP 91 Activated July 21st

In a test of bitcoin’s democratic underpinnings and philosophical ideals, the bitcoin network will undergo a soft fork on August 1st. As voted by 95% of all bitcoin hash power on July 21st by miners signaling support for Bitcoin Improvement Proposal 91 (BIP 91), Segregated Witness (more specifically, SegWit2x) will go into effect after a two-week grace period, and a mandated hard fork will take place in 3 months. While SegWit will address bitcoin’s scaling needs by implementing a way to reduce the amount of data in each transaction, changes to the actual bitcoin block size can only be made through a hard fork, or backward-incompatible software upgrade, which is the second part of BIP 91.

The idea of a hard fork has been particularly contentious among the bitcoin development community. Strong cases have been made on both sides of the argument:

Pro-Fork: If bitcoin cannot scale to economic demand, its fee structure will favor the rich, or those willing to pay more to have their transaction go through quicker, and Satoshi Nakamoto’s vision of bitcoin as universally accessible will be undone.

Anti-Fork: If bitcoin changes its block size limit, blocks will become much larger and the blockchain will grow at an even faster rate, as it will be even harder for an average world citizen to download the blockchain and run a node, and Satoshi Nakamoto’s vision of bitcoin as decentralized will be undone.

BTC Climb To $3000 Marches Forward

Meanwhile, bitcoin investors seem undeterred as prices rose 30%+ over the last week, bringing up several altcoins along with it. Regardless of the prospects of a hard fork, the “real bitcoin” will continue to be the one with the longest blockchain and the most hashpower, meaning competing forks will be forever doomed with the stigma of “altcoin.” This will likely be the fate of BIP 148, another SegWit-enforcing “soft fork,” which could trigger a chain split if even just a few miners keep supporting it.

Since most bitcoin hashpower will probably not signal for BIP 148 by August 1st – the protocol’s deadline for self-implementation – the BIP 148-version of the chain will fall to the wayside, meaning the majority of bitcoin users will not be effected one way or the other. Long story short: soft fork or hard fork, bitcoin will always remain bitcoin as voted on by at least 51% of the community. Miners, nodes and average users all succeed when the bitcoin name and brand succeeds, while only a select few benefit when bitcoin branches off to become something else.

Ethereum – A Hard Fork Case Study

Not every “original” version of a coin is the successful one. The most successful example of this is Ethereum (ETH), which is actually a hard-forked version of Ethereum Classic (ETC), which was simply known as “Ethereum” before the hard fork. The hard fork was justified by the majority of the community after a hacker exploited a flaw in Ethereum’s original code that allowed the theft of $60 million in ether during crowdfunding of The DAO. The new Ethereum software rolled the blockchain back to a period in time before the hack took place while simultaneously patching the exploit that allowed the hacker to “legally” steal from The Dao. Regardless, a handful of users moved forward with the old version of the software and blockchain, which became known as Ethereum Classic. While the original version of Ethereum has enjoyed some success, ETC is currently #46 on the coin market cap charts; its valuation nowhere near that of its successor, ETH.

A hard fork and rollback of the blockchain may not have solved all Ethereum’s woes. Just last week a hacker managed to exploit a poor code design in a popular multisignature wallet, taking off with $31 million in ETH, before a group of “white hat hackers” managed to use the same exploit to move $150 million in ETH from other affected wallets to safer ones. The exploit is arguably not caused by a flaw in the Ethereum code itself but rather the wallet programmer’s interpretation of Ethereum’s “instruction manual.” The price of ETH had already been on the decline since reaching dramatic highs in June, but ICO investors will likely continue to worry about potential problems with Ethereum’s advanced API functionalities.

Also In The News

  • Federal government from multiple countries are taking credit for a takedown of the dark web’s two biggest dark markets. It was previously suspected that administrators of the AlphaBay market had run off with their customers’ bitcoin before shutting their doors. In the ensuing chaos, a sizeable number of customers were directed to another darknet market, Hansa. It was revealed on July 20th that federal governments had seized control of Hansa some time earlier and collected the information of several AlphaBay refugees who had fled their after AlphaBay’s unexpected closure.
  • DeepOnion is taking TOR usage in another direction, by applying it directly to the blockchain space. The project hopes to keep user transactions 100% anonymous by maintaining all network activity over the TOR network, thereby masking user IP addresses and transaction information. The need for anonymity during software usage remains a double-edged sword: on one hand, it protects users from outside interference, on the other it allows criminals to conduct business undetected.
  • On a more positive note, gaming company NEVERDIE is seeking to develop a cross-game cryptocurrency for virtual reality gaming systems. NeverDie coins (NDC) will also be exchangeable for other cryptocurrencies or participation in e-sports competitions. MMORPG developer Richard Garriott recently announced plans to partner with the company to work on the “government structure” of the company’s virtual worlds, which will use Teleport Tokens (TPT) to move players from one world to another.