Scroll down to the monkey if you just want my investment advice given Bitcoin’s fork talk.
I’ve always promoted both bitcoin and many altcoins. My long standing hope for the future of cryptos was a world where bitcoin never lost its dominance, but within a world of many successful crypto currencies. I thought this would develop naturally. Bitcoin’s scaling problems solved by growth within altcoins. What the Bitcoin network couldn’t handle, altcoins would take over. And this wasn’t a situation to fear, it should be embraced. Bitcoin slowing down and fees going up is not a bad thing. It helps cryptos mimic the wealth mediums the public is familiar with. Long term savings and valuable assets aren’t bought and sold in an instant for cheap. Buying a pack of gum you use the change in your pocket. Buying a stereo you’d probably use a card of some sort, just as quick but you pay some fees. Buying/selling property, stocks, bonds and such are all likewise even slower and more expensive. If in America, you use USD. In Canada its CAD. In the retailer Canadian Tire, you can use “Canadian Tire Money”. All of these things are stores of value and are offered in digital and multiple physical forms like bills and coins. So to try to convince the world to adopt 1 single currency for everything seems like an impossible task. The best case scenario future is one where you have one ultra secure wallet that can take any type of crypto. Bitcoins are slow and expensive, but you have a bunch of different currencies for different uses. Buying gum? Use Fastcoin instead, its the fastest. Buying life savings or the reserves of a nation, get Bitcoin.
But now there is a very real chance this future won’t happen. For the first time, I’m falling to the side that believes bitcoin will not remain dominant forever. I’ve been into cryptos since 2012 so this is a long time coming. I think we’ll see a future where Bitcoin is simply one in a pack. Always valuable and top level, but not dominant without question. Its market cap will be surpassed. I don’t like this prediction, but I think it will happen. What will bring this on is a fork in Bitcoin or the threat of one. It won’t necessarily be the fork brewing today with Bitcoin Unlimited, but it will happen. Bitcoin’s scaling problem will forever and always drive a division between its community. There will be those that never want to change the core code of bitcoin and those that will insist it be changed to allow a faster network. That group that wants to change the code will keep trying. And one day, either by popular adoption, or reckless separation, they will get their way. Basically one day the bitcoin blockchain and the people mining it will split into 2 separate groups. The ledger will remain the same at the time of separation for both groups, but from that moment forward they will start building upon 2 different ledgers that do not interact. There are 2 ways this could go down. Popular adoption is the peaceful way, this would be where a high goal is set (90%). When 90% of the miners have agreed to switch, the new code is adopted. The other 10% would continue to mine the old code.
But there is a nastier less predictable way it could go down, and this could happen at any moment. This takes a bit of explanation about how blockchains work. Every 10 mins or so, Bitcoin adds a new “block”, this is how it continues to build its ledger. The block is found by a process where miners look for a specific number within a haystack of random numbers. The first miner to find the needle in the haystack, has thus found the new block and wins a prize of bitcoin generated by the system and fees. So when you’re “mining” bitcoin, you’re always looking for these needles in haystacks, always adding new blocks to the ledger. But everyone has access to the haystack at the same time, so invariably sometimes 2 people in different parts of the world may find the new block at almost the exact same time. This happens frequently and technically, its a fork. The network splits and goes 2 different ways, but its also quickly and automatically resolved. The network self checks itself and determines who was first and was the legit winner. Because its an organic system of interconnected nodes, sometimes the verification from the rest of the network can be confused. To put this into an analogy/perspective…. Suppose the 2 winners who found blocks were in China and Canada. Immediately the Chinese miners close to the winner will confirm his block as legit, but the nearby Canadian miners will do the same thing for the winner in Canada. Its only by a system of the entire network seeing each other and cross verifying a few times, that the real winner is determined.
So how does this factor into a “reckless separation” threat to bitcoin forking? As it sits now, a large amount of the network is mining a new code called BU. Its a redesign that will allow more transactions than the current code permits. When small forks happen like my above example, its no big deal, the two codes work well with each other and quickly resolve the discrepancies. But, there is the risk of an unforeseen discrepancy between miners that will not automatically resolve. This almost happened back in Feb. Basically a BU miner found a block that the old code miners rejected. Back to my geographic analogy. The guy in China is saying he found the block faster, but as far as I can tell here in Canada, what he found wasn’t a real block so who cares when he found it. This is a much more complicated dispute to resolve and carries a massive risk. In this scenario back in Feb, the BU winner and miners who confirmed him basically backed down. They quickly changed their code to prevent it happening in the future and abandoned the fork that had begun based on the unexpected block. But in this scenario, it was lucky that it went down this way. If the response to the issue was slower, the miners who had confirmed the unusual block, may have resisted abandoning it and kept going creating a new chain. In fact there may well be those within the system who would like such a thing to happen, and would focus their miners on mining a chain based on that new block intentionally. Devs who want the split may even plant flaws into codes to encourage it to occur. This isn’t an accusation against BU specifically, rather a long term prediction… At some point 2 groups of miners will not come to agreement, either by accident or intention, and won’t resolve. At that point there are 2 bitcoins, and we never go back to 1.
My prediction is that this will happen at some point. When it does, both bitcoins will not be able to maintain absolute dominance over other altcoins. As soon as one of the 2 bitcoins drops below ETH or another alt coin in value, its all over. Bitcoin dominance will never be secure again. Any coin could beat it, at any time. Given the low value of Bitcoin overall against world finance, it wouldn’t take much for the ETH backers or another coin to fund a run to surpass the weaker bitcoin.
Caveat. The only way this inevitable fork doesn’t come about is if Bitcoin’s scaling problems are resolved without the need for a fork. This will also come eventually if everyone would just be patient and wait. I’m just thinking now that no, they won’t be patient.
As my friend and blog reader who hopefully has bought some bitcoin, what does this mean for you? My advice is to have a healthy amount of alts coins. I prefer older cheaper coins as they’ve got great room for growth, ETH and DASH are a bit expensive already. So LTC, FTC, PPC, VTC, XPM – the classics. Use polo, bittrex, livecoin or cryptopia– all good sites. Happy to suggest more cryptos too if you want to talk in the comments….My reasoning here is that the money isn’t going to leave Cryptos, but if bitcoin splits the money will probably relocate. So that means alt coins will go way up in value. News of the potential fork has done this to some degree already, but it could be far from over if Bitcoin really does lose the top spot by fork or even just the threat of the fork. Bitcoin’s market cap is 20 billion dollars. Litecoin’s is 200 million. Feathercoin’s 2 million. So its easy to see if bitcoin’s 20 billion in value starts to float about, you won’t need much in altcoins to see incredible gains.
If you don’t have any bitcoin, buy some bitcoin already! If you have bitcoin already, hedge your savings and buy some alt coins as well. Just a little can go a very long way.